A total of 167 term neonates with a diagnosis of hypoxic-ischemic encephalopathy (HIE) had detailed neurodevelopmental follow-up at 3.5 years of age. All 66 children with mild HIE were free from handicap; all seven with severe HIE were severely handicapped; and of the 94 with moderate HIE at birth, 21.3 per cent were handicapped. Mean IQ was significantly related to the category of HIE. Within the moderate HIE category, the neurological examination at discharge from the Neonatal Intensive Care Unit was more useful than the presence of neonatal convulsions in identifying children with subsequent developmental delay. Abnormalities on this examination related significantly to an increased number of handicapped children, decreased motor and language skills, and lower IQs. Although neonatal convulsions were associated with an increased number of handicapped children, they did not significantly affect most other developmental outcome measures. In term infants with documented HIE at birth, major neurodevelopmental dysfunction at 3.5 years depended more on prospectively established category of HIE than on other perinatal or social factors.