OBJECTIVE: To evaluate diabetes outcomes under a national "pay-for-performance" program. RESEARCH DESIGN AND METHODS: Data were analyzed for 98% of all English family practices. For each practice, the proportion of diabetic subjects with A1C <or=7.5%, blood pressure <or=145/85 mmHg, and cholesterol <or=5 mmol/l was determined. Practices achieving less than the 25th centile for the A1C target for 2006-2007 were classified as low performing. RESULTS: The proportion achieving the A1C target at the median practice increased from 59.1% (interquartile range [IQR] 51.7-65.9) in 2004-2005 to 66.7% (IQR 60.6-72.7) in 2007-2008, blood pressure from 70.9% in 2004-2005 to 80.2% in 2007-2008, and cholesterol from 72.6% in 2004-2005 to 83.6% in 2007-2008. In 2004-2005, 57% of practices were low performing (range by region 42.4-69.9). In 2007-2008, 26% of practices were low performing (range 11.6-37.5). CONCLUSIONS: Introduction of pay-for-performance may be one factor contributing to increasing achievement of targets and reducing problems of low performance.