This study explored a new strategy of assessing laboratory skills in a molecular biology course to improve: student effort in preparation for and participation in laboratory work; valid evaluation of learning outcomes; and students' employment prospects through provision of evidence of their skills. Previously, assessment was based on written laboratory reports and examinations, not on the demonstration of practical skills per se. This action research project involved altering the assessment design so that a greater proportion of the marks was allocated to active participation and learning in the laboratory, partially replacing a single examination with direct observation of student participation and learning over a prolonged period of weekly laboratory sessions. We ascertained staff and students' perceptions of the new assessment processes by means of a Likert scale questionnaire, student focus group and individual staff interviews. Overall, students and staff evaluated the new assessment structure positively, citing fairness, authenticity and reward for effort. Results also revealed the need for specific training of staff in this form of assessment and indicated staff-student ratios made assessment burdensome. Four out of five students reported that an increased awareness of the importance of practical laboratory skills stimulated them to greater efforts to achieve. (Contains 6 tables.)