Background Evidence on the effect of pay-for- performance (P4P) schemes on provider performance is mixed in low-income and middle-income countries. Brazil introduced its first national-level P4P scheme in 2011 (PMAQ-Brazilian National Programme for Improving Primary Care Access and Quality). PMAQ is likely one of the largest P4P schemes in the world. We estimate the association between PMAQ and hospitalisations for ambulatory care sensitive conditions (ACSCs) based on a panel of 5564 municipalities. Methods We conducted a fixed effect panel data analysis over the period of 2009–2018, controlling for coverage of primary healthcare, hospital beds per 10 000 population, education, real gross domestic product per capita and population density. The outcome is the hospitalisation rate for ACSCs among people aged 64 years and under per 10 000 population. Our exposure variable is defined as the percentage of family health teams participating in PMAQ, which captures the roll-out of PMAQ over time. We also provided several sensitivity analyses, by using alternative measures of the exposure and outcome variables, and a placebo test using transport accident hospitalisations instead of ACSCs. Results The results show a negative and statistically significant association between the rollout of PMAQ and ACSC rates for all age groups. An increase in PMAQ participating of one percentage point decreased the hospitalisation rate for ACSC by 0.0356 (SE 0.0123, p=0.004) per 10 000 population (aged 0–64 years). This corresponds to a reduction of approximately 60 829 hospitalisations in 2018. The impact is stronger for children under 5 years (−0.0940, SE 0.0375, p=0.012), representing a reduction of around 11 936 hospitalisations. Our placebo test shows that the association of PMAQ on the hospitalisation rate for transport accidents is not statistically significant, as expected. Conclusion We find that PMAQ was associated