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This study assesses the overall spatial variations and neighbourhood-level 'hot spots' of low birth weight and preterm birth incidence within three public health units in Ontario, Canada. The analysis uses a stepwise approach of intra-class correlation analysis, a spatial scan statistic, and multilevel spatial modeling. Results show that neighbourhood level variation accounts for only 2-3 percent of the total variation of adverse birth outcomes in the study area. However, strong spatial autocorrelation is observed at the neighbourhood level, and spatial clusters of relatively high adverse birth outcome rates exist in areas that are associated with environmental risks, including pollution sources and proximity to highways. Thus, although estimated neighbourhood impacts on adverse birth outcomes are small compared with those of individual-level risks, local high potential environmental risk areas are identifiable. Environmental surveillance and spatial statistical analysis should be conducted regularly by local health authorities to identify and monitor the impact of environmental changes on health in general and on birth outcomes in particular. Specific community-oriented health interventions may be required to reduce observed local health impacts. [ABSTRACT FROM AUTHOR]