In September 2006, the 7-valent pneumococcal conjugate vaccine (PCV7) was added to the UK immunization programme. We aimed to evaluate the impact of PCV7 on the incidence of all-cause community-acquired pneumonia (CAP) in children. A prospective survey was undertaken in 2008–2009 at 11 hospitals in North East England of children aged 0–16 years with radiologically confirmed pneumonia. Data were compared to those from a similar survey undertaken in the same hospitals in 2001–2002. A total of 542 children were enrolled, of which 74% were aged <5 years. PCV7 uptake was 90·7%. The incidence of pneumonia was 11·8/10 000 [95% confidence interval (CI) 10·9–12·9], and the hospitalization rate was 9·9/10 000 (95% CI 9·0–10·9). Compared to 2001, there was a 19% (95% CI 8–29) reduction in the rate of CAP in those aged <5 years, and in those <2 years a 33·1% (95% CI 20–45) reduction in the incidence of CAP and 38·1% (95% CI 24–50) reduction in hospitalization rates. However, for those unvaccinated aged ⩾5 years, there was no difference in the incidence of CAP and hospitalization rate between both surveys. Since 2001, the overall reduction in incidence was 17·7% (95% CI 8–26) and for hospitalization 18·5% (95% CI 8–28). For the <5 years age group there was a lower incidence of CAP in PCV7-vaccinated children (25·2/10 000, 95% CI 22·6–28·2) than in those that were not vaccinated (37·4/10 000, 95% CI 29·2–47·1). In conclusion, PCV7 has reduced both incidence and rate of hospitalization of pneumonia in children, particularly in the <2 years age group.