Background: Residential aged care facility residents experience high rates of hospital admissions which are stressful, costly and often preventable. Design: Prospective pre-post cohort study and decision model analysis. Intervention: A decision-support tool was implemented to enable nursing staff to detect, refer and quickly respond to early signals of a deteriorating resident. Advanced clinical skills training, new diagnostic equipment and guided support from clinical lead nurses and nurse practitioners was provided to support nursing staff in the delivery of appropriate sub-acute care. Outcome measures: Rate of hospital admissions; length of stay; incremental cost per QALY; net monetary benefit. Results: The hospital avoidance program was associated with a 19% reduction in annual hospital admissions and a 31% reduction in the average length of stay. When modelled in a cohort of 1,000 residents the program resulted in a total of 1,606 fewer hospital bed days per annum. This contributed to a total cost saving of $2.6 million and 0.62 incremental QALYs gained per 1,000 residents. The program had a positive net monetary benefit and was considered cost-effective, even when the willingness to pay for health care gains was set to zero. A probabilistic sensitivity analysis estimated that there was an 86% probability that the program was cost-effective after taking the uncertainty of the model inputs into account. Conclusions: This study provides compelling evidence for the effectiveness and cost-effectiveness of a RACF nurse led sub-acute care program in preventing unnecessary hospital admissions.