This retrospective study was conducted to evaluate whether an observation unit (OU) attached to the emergency department (ED) of a tertiary care hospital in India is safe, is effective in minimizing hospitalization of acutely ill patients and is acceptable to the patients. Of 115,916 patients who attended the ED, 11,130 (9.6%) were observed in the OU. The average period of observation was 7.74 h. Of the patients observed, 21.3% required hospitalization, while 78.5% were discharged after treatment. Twenty-four patients left the hospital against medical advice, and three patients died in the OU. It is concluded that an OU in the ED is safe in treating acutely ill patients, is effective in reducing substantially the number of patients requiring admission to the hospital, and is acceptable to the patients.