Objective: to compare the clinical and cost-effectiveness of a Community In-reach Rehabilitation and Care Transition (CIRACT) service with the traditional hospital-based rehabilitation (THB-Rehab) service. Design: pragmatic randomised controlled trial with an integral health economic study. Settings: large UK teaching hospital, with community follow-up. Subjects: frail older people aged 70 years and older admitted to hospital as an acute medical emergency. Measurements: Primary outcome: hospital length of stay; secondary outcomes: readmission, day 91-super spell bed days, functional ability, co-morbidity and health-related quality of life; cost-effectiveness analysis. Results: a total of 250 participants were randomised. There was no significant difference in length of stay between the CIRACT and THB-Rehab service (median 8 versus 9 days; geometric mean 7.8 versus 8.7 days, mean ratio 0.90, 95% confidence interval (CI) 0.74–1.10). Of the participants who were discharged from hospital, 17% and 13% were readmitted within 28 days from the CIRACT and THB-Rehab services, respectively (risk difference 3.8%, 95% CI −5.8% to 13.4%). There were no other significant differences in any of the other secondary outcomes between the two groups. The mean costs (including NHS and personal social service) of the CIRACT and THB-Rehab service were £3,744 and £3,603, respectively (mean cost difference £144; 95% CI −1,645 to 1,934). Conclusion: the CIRACT service does not reduce major hospital length of stay nor reduce short-term readmission rates, compared to the standard THB-Rehab service; however, a modest (<2.3 days) effect cannot be excluded. Further studies are necessary powered with larger sample sizes and cluster randomisation.