Resource Utilization Groups III (RUG-III) is a case-mix system developed in the United States for categorization of nursing home residents and the financing of residential care services. In Hong Kong, RUG-III is based on several board groups of residents. The aim of this study was to examine the reliability and validity of the RUG-III in Hong Kong nursing homes. A cross-sectional survey was conducted in seven residential facilities operated by one agency. Residents (N = 1,127) were assessed by the Minimum Data Set (MDS) and nursing as well as auxiliary staff care times were recorded within 2 weeks before or after the completion of MDS assessment. Forty-five out 1,127 residents were re-interviewed by an independent assessor to assess the inter-rater reliability. The inter-rater reliability of MDS assessment was excellent (K = 0.76) and the original RUG-III accounted for about 30 per cent of nursing staff time. Results provide preliminary evidence to support that RUG-III is a reliable and valid case-mix system for Hong Kong nursing homes, but future studies must be explored to reduce the variance of resource use explained by this case-mix system.