Objective: To identify magnetic resonance imaging (MRI) variables that are predictive of neurological outcome in children with acute encephalitis. Methods: We retrospectively reviewed all consecutive patients younger than 18 years who presented to the Tuen Mun Hospital, Hong Kong, between January 2006 and July 2014 with the diagnosis of acute encephalitis. The location and extent of hyperintense lesions on T2-weighted or fluid-attenuated inversion recovery images and the presence of restricted diffusion were assessed. The extent of lesions was quantified using a scoring system ranging 0 to 9. Clinical outcome was assessed at 1 year using the Pediatric Cerebral Performance Category Scale (PCPCS). Neurological outcome was dichotomised to good (PCPCS score of 1) or adverse (PCPCS score of 2 to 6). Multiple logistic regression analysis was used to determine the association between neurological outcome and lesion location or restricted diffusion. Spearman's rank correlation test was used to evaluate the association between lesion extent score and the PCPCS score. Results: Of 46 patients, 12 were excluded and the remaining 15 male and 19 female patients aged 2 months to 17 years were included. The mean time from admission to MRI was 7 days (median, 4 days; range, 1-40 days); only two patients underwent MRI after 3 weeks. At 1 year, 24 patients achieved good outcomes with no neurological sequelae (PCPCS score of 1), six patients had mild to moderate (n = 4) or severe (n = 2) residual neurological deficits (PCPCS score of 2 to 5), and four patients died (PCPCS score of 6). All patients with adverse outcomes had T2-weighted or fluid-attenuated inversion recovery images that showed hyperintense parenchymal lesions. Adverse neurological outcome was associated with involvement of basal ganglia and/or thalami (odds ratio [OR] = 12.7; p = 0.004) and involvement of the brainstem (OR = 8.8; p = 0.023). Lesion extent score was moderately correlated with PCPCS score (r 2 = 0.35; p = 0.01). Restricted diffusion was a predictor of adverse neurological outcome (OR = 5.7; p = 0.033). Conclusion: Restricted diffusion and involvement of the deep grey nuclei and brainstem are predictive of adverse neurological outcome. Patients with a greater extent of lesions tend to have worse neurological outcomes.