Pediatric observation units (OUs) are hospital areas used to provide medical evaluation and/or management for health-related conditions in children, typically for a well-defined, brief period. Pediatric OUs represent an emerging alternative site of care for selected groups of children who historically may have received their treatment in an ambulatory setting, emergency department, or hospital-based inpatient unit. This clinical report provides an overview of pediatric OUs, including the definitions and operating characteristics of different types of OUs, quality considerations and coding for observation services, and the effect of OUs on inpatient hospital utilization.