Background. Disability and falls are particularly common among older people who have recently been hospitalised. There is evidence that disability severity and fall rates can be reduced by well-designed exercise interventions. However, the potential for exercise to have these benefits in older people who have spent time in hospital has not been established. This randomised controlled trial will investigate the effects of a home-based exercise program on disability and falls among people who have had recent hospital stays. The cost-effectiveness of the exercise program from the health and community service provider's perspective will be established. In addition, predictors for adherence with the exercise program will be determined. Methods and design. Three hundred and fifty older people who have recently had hospital stays will participate in the study. Participants will have no medical contraindications to exercise and will be cognitively and physically able to complete the assessments and exercise program. The primary outcome measures will be mobility-related disability (measured with 12 monthly questionnaires and the Short Physical Performance Battery) and falls (measured with 12 monthly calendars). Secondary measures will be tests of risk of falling, additional measures of mobility, strength and flexibility, quality of life, fall-related self efficacy, health-system and community-service contact, assistance from others, difficulty with daily tasks, physical activity levels and adverse events. After discharge from hospital and completion of all hospital-related treatments, participants will be randomly allocated to an intervention group or usual-care control group. For the intervention group, an individualised home exercise program will be established and progressed during ten home visits from a physiotherapist. Participants will be asked to exercise at home up to 6 times per week for the 12-month study period. Discussion. The study will determine the impact of this exercise intervention on mobility-related disability and falls in older people who have been in hospital as well as cost-effectiveness and predictors of adherence to the program. Thus, the results will have direct implications for the design and implementation of interventions for this high-risk group of older people. Trial Registration. The protocol for this study is registered with the Australian New Zealand Clinical Trials Registry ACTRN12607000563460.