The persistence of high perinatal and neonatal mortality rates in many developing countries make efforts to improve perinatal care in the home and at local health facilities important public health concerns. We describe a study which aims to evaluate a community-level participatory intervention in rural Nepal. The effectiveness of community-based action research interventions with mothers and other key members of the community in improving perinatal health outcomes is being examined using a cluster randomized, controlled trial covering a population of 28,000 married women of reproductive age. The unit of randomization was the village development committee (VDC): 12 VDCs receive the intervention while 12 serve as controls. The key elements of the intervention are the activities of female facilitators, each of whom works in one VDC facilitating the activities of women's groups in addressing problems in pregnancy, childbirth and the newborn period. Each group moves through a participatory planning cycle of assessment, sharing experiences, planning, action and reassessment, with the aim of improving essential maternal and newborn care. Outcomes assessed are neonatal and perinatal mortality rates, changes in patterns of home care, health care seeking and referral. The study also aims to generate programmatic information on the process of implementation in communities.