Rural impacts of a Medicare drug benefit will ultimately depend on the number of elderly who are currently without drug coverage, new demand by those currently without coverage, the nature of the new benefit relative to current benefits, and benefit design. Purpose: To enhance understanding of drug coverage among rural elderly Medicare beneficiaries and their expenditures for pharmaceuticals. Methods: Estimates of the extent of coverage, expenditures, and sources of drugs were obtained using data are from the 1997 Medicare Current Beneficiary Survey and the Pharmacy Verification and Household Components of the 1996 Medical Expenditure Panel Survey. Findings: Three-quarters of the urban elderly had some type of drug coverage in 1997 versus 59% of the elderly in rural areas. Urban residents were more likely to have obtained their drug coverage from an employer-sponsored supplemental plan, and rural residents were more likely to have self-purchased Medigap drug coverage. Expenditures and use of drugs by Medicare beneficiaries are greater for those with than without coverage, and differences are invariant with respect to geographic location. Coverage under self-purchased supplemental plans appears less generous than under employer-sponsored plans in both rural and urban areas. Rural and urban elderly are more than twice as likely to receive at least 1 prescribed medication through the mail than the general population. Conclusion: A well-designed Medicare drug benefit would be especially beneficial to the rural elderly because relatively more rural elderly currently lack coverage or have less generous coverage than urban beneficiaries.Mail-order distribution may help contain future program expenditures.