Quality indicators have been developed throughout Europe primarily for use in hospitals, but also increasingly for primary care. Both development and application are important but there has been less research on the application of indicators. Three issues are important when developing or applying indicators: (1). which stakeholder perspective(s) are the indicators intended to reflect; (2). what aspects of health care are being measured; and (3). what evidence is available? The information required to develop quality indicators can be derived using systematic or non-systematic methods. Non-systematic methods such as case studies play an important role but they do not tap in to available evidence. Systematic methods can be based directly on scientific evidence by combining available evidence with expert opinion, or they can be based on clinical guidelines. While it may never be possible to produce an error free measure of quality, measures should adhere, as far as possible, to some fundamental a priori characteristics (acceptability, feasibility, reliability, sensitivity to change, and validity). Adherence to these characteristics will help maximise the effectiveness of quality indicators in quality improvement strategies. It is also necessary to consider what the results of applying indicators tell us about quality of care.