The purpose of this study was to explore changes in family health associated with child's chronic illness and hospitalization. The aim was to answer the following questions: (i) What kind of changes do families experience when a child in the family is afflicted by a chronic illness; and (ii) What kind of changes do families experience when their child is admitted to hospital? The data were collected in 2002 in interviews with 29 such families whose children were receiving treatment or who had previously received treatment on the paediatric wards of two hospitals in Finland. Data were collected until reaching theoretical saturation, in which no additional data are found. Data analysis was based on the grounded theory method, proceeding to the stage of axial coding. Family health was formed out of two different dimensions: the constituent systems and the resources of family health. The constituent systems describe the impact of the child's chronic illness and period of hospitalization at the level of both individual family members and the family as a whole. These systems were described by five categories: (i) ill child at the centre of family attention, (ii) siblings in a minor role, (iii) the child's illness governs parental well-being, (iv) the roller coaster of the couple relationship and (v) the whole family is ill. The resources promoting and maintaining family health were divided into six different categories: (i) creative and maintaining mental images, (ii) active involvement, (iii) internal coping means, (iv) reinforcement of coping means, (v) awareness and change of values and (vi) social network shares emotional burden and responsibility for care. The results of the study show that family health is highly vulnerable when a child has to be admitted to hospital because of a chronic condition. They should help nursing staff gain a clearer picture of the depth and diversity of family health and support the resources that promote family health. Future research should study the methods of family nursing used in the care of families with children with chronic conditions.