Background: recent studies have found that moderate intensity exercise is an effective intervention strategy for preventing falls in older people. However, research is required to determine whether supervised group exercise programmes, conducted in community settings with at‐risk older people referred by their health care practitioner are also effective in improving physical functioning and preventing falls in this group. Objectives: to determine whether participation in a weekly group exercise programme with ancillary home exercises over one year improves balance, muscle strength, reaction time, physical functioning, health status and prevents falls in at‐risk community‐dwelling older people. Methods: the sample comprised 163 people aged over 65 years identified as at risk of falling using a standardised assessment screen by their general practitioner or hospital‐based physiotherapist, residing in South Western Sydney, Australia. Subjects were randomised into either an exercise intervention group or a control group. Physical performance and general health measures were assessed at baseline and repeated 6‐months into the trial. Falls were measured over a 12‐month follow‐up period using monthly postal surveys. Results: at baseline both groups were well matched in their physical performance, health and activity levels. The intervention subjects attended a median of 23 exercise classes over the year, and most undertook the home exercise sessions at least weekly. At retest, the exercise group performed significantly better than the controls in three of six balance measures; postural sway on the floor with eyes open and eyes closed and coordinated stability. The groups did not differ at retest in measures of strength, reaction time and walking speed or on Short‐Form 36, Physical Activity Scale for the Elderly or fear of falling scales. Within the 12‐month trial period, the rate of falls in the intervention group was 40% lower than that of the control group (IRR=0.60, 95% CI 0.36–0.99). Conclusions: these findings indicate that participation in a weekly group exercise programme with ancillary home exercises can improve balance and reduce the rate of falling in at‐risk community dwelling older people.