With proportion of neonatal mortality increasing within under-five deaths, innovative approaches and stronger health systems are needed in neonatal care. We present data of a scaled-up neonatal facility in a District Government Headquarters hospital in Southern India. The special care neonatal unit (SCNU) was a community propelled, public private partnership worked out on the principles of private funding of public institutions and effective budgeting of the public health care system. In the first phase the unit was optimized over 3 years with non-governmental organizations (NGO) and government support from a basic nursery to a SCNU. The unit was operational through fixed maintenance budget from government and mobilized funds from NGOs and beneficiaries. Community health workers were motivated for effective utilization. In the second phase the unit's performance was studied and statistically analyzed in two time frames before and 5 years into the upgradation process. Neonatal admissions from the district increased by 14.65%. Hospital stillbirth, early neonatal and perinatal mortality rates showed significant decline (p < 0.05). There was a 48.59% (CI: 25.46-77.80) increase in antenatal referrals from community health centers. Caesarian sections for neonatal parameters that affect obstetric decisions showed percent changes of 163.25 (CI: 31.18-430.45) and 73.4 (CI: 14.15-164.39) for prematurity and low birth weight (LBW), respectively. Significant decline in case fatality rates for LBW, sepsis and birth asphyxia (p < 0.001) were observed. The district perinatal mortality rate showed a decline. Within the purview of financial constraints of the public health system, private funding, public-private cooperation and effective budgeting may become significant. Motivation of health workers and community to effectively utilize public health care services sets an evolutionary process of referral and vertical linkage of health care system.