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Major developments in medical education in Australia include increasing the numbers of students and educating more students within the community and in regional, rural and remote settings. Rapid growth of student numbers and the rural orientation of the James Cook University medical school course has meant that northern Queensland had to deal with these issues earlier than other regions. One solution has been to transform some rural hospitals into teaching health services. Two hospitals that have successfully made this transformation, and another on its way, suggest that important factors include local commitment to quality clinical services, medical and academic leadership, coordination of local resources, community support, and strategic links between key organisations. Transformation to a teaching health service involves senior doctors functioning as true consultants with cascading supervision as in the traditional consultant-registrar-resident model. As both clinical and teaching capacity develops, the workforce may stabilise, infrastructure and teaching culture are established, and long-term recruitment and retention strategies emerge. Applying these models in other rural and community settings may make it possible to manage the increased training capacity and address workforce needs without compromising the educational experience - indeed, it may be enhanced.