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The most common option for numerical models of the atmosphere is to use model layers following the surface of the earth, using a terrain-following vertical coordinate. The present paper investigates the forecast of clouds and precipitation using the z-coordinate nonhydrostatic version of the Lokalmodell (LM-z). This model uses model layers that are parallel to the surface of the sphere and consequently intersect the orography. Physical processes are computed on a special grid, allowing adequate grid spacing even over high mountains. In other respects the model is identical to the nonhydrostatic terrain-following version of the LM, which in a number of European countries is used for operational mesoscale forecasting. The terrain-following version of the LM (LM-tf) is used for comparison with the forecasts of the LM-z. Terrain-following coordinates are accurate when the orography is shallow and smooth, while z-coordinate models need not satisfy this condition. Because the condition of smooth orography is rarely satisfied in reality, z-coordinate models should lead to a better representation of the atmospheric flow near mountains and consequently to a better representation of fog, low stratus, and precipitation. A number of real-data cases, computed with a grid spacing of 7 and 14 km, are investigated. A total of 39 real-data cases have been used to evaluate forecast scores. A rather systematic improvement of precipitation forecasts resulted in a substantial increase of threat scores. Furthermore, RMS verification against radiosondes showed an improvement of the 24-h forecast, both for wind and temperature. To investigate the possibility of flow separation at mountain tops, the flow in the lee of southern Italy was investigated. [ABSTRACT FROM AUTHOR]