The medical records of 94 patients with pneumonia who were not admitted to hospital were reviewed and compared with those of 25 patients admitted to hospital for treatment of pneumonia. In all, 93% of the outpatients in whom follow-up could be obtained did not require modification of treatment. This included patients older than 50 years of age without important underlying illness, patients with leukocyte counts of more than 14,000 per mu and patients with multilobular pneumonia. A properly obtained Gram-stained sputum specimen showing a predominant organism was the best method for determining the antimicrobial regimen. If sputum cannot be obtained for Gram's staining, erythromycin should be the drug of choice for patients younger than 40 years and ampicillin or erythromycin should be given to those patients older than 40 years who are managed outside of the hospital. Patients who are critically ill with tachypnea or hypoxia and those with severe underlying illness and pneumonia should be admitted to hospital.