Background Standard Treatment Guidelines were introduced to all prescribers at provincial hospitals in Lao PDR and treatment indicators were developed within the National Drug Policy programme to monitor compliance. Objectives To evaluate the effects of an educational intervention to improve treatment practices of malaria, diarrhoea and pneumonia. Methods Randomized controlled trial with prescribers at 24 departments at eight provincial hospitals, matched into four pairs. The three departments of internal medicine, paediatrics and out-patients in each pair were randomized into intervention or control group. The 6-month intervention was conducted by members of the Drug and Therapeutics Committees, and comprised monthly audit sessions in the form of outcome feedback using indicator scores on recorded treatment of malaria, diarrhoea and pneumonia. We measured treatment indicator scores 6 months after the end of the intervention compared with baseline. Results The aggregated mean scores for all diseases, and for malaria and diarrhoea, improved significantly. For pneumonia, improvement was seen in both the intervention and control groups. Record keeping was improved for all three diseases. For malaria, there were improvements in recording patients' history, and in frequency of microscope testing; for diarrhoea, regarding weight measurements, palpation of the fontanel for children under 2 years, and reduction of irrational use of anti-diarrhoeals and antibiotics; for pneumonia, in recording respiratory count, and reducing irrational use of anti-histamines and anti-cough medications. Conclusions Audit-feedback systems to improve quality of care are feasible and effective also in hospital settings in low-income countries.