AIM To compare drug recovery outcomes in commissioning areas included in a 'payment by results' scheme with all other areas. DESIGN Observational and data linkage study of the National Drug Treatment Monitoring System, Office for National Statistics mortality database and Police National Computer criminal records, for 2 years before and after introduction of the scheme. Pre-post controlled comparison compared outcomes in participating versus non-participating areas following adjustment for drug use, functioning and drug treatment status. SETTING Drug services in England providing publicly funded, structured treatment. PARTICIPANTS Adults in treatment (between 2010 and 2014): 154 175 (10 716 in participating areas, 143 459 non-participating) treatment journeys in the 2 years before and 148 941 (10 012 participating, 138 929 non-participating) after the introduction of the scheme. INTERVENTION Scheme participation, with payment to treatment providers based on patient outcomes versus all other areas. MEASUREMENTS Rate of treatment initiation; waiting time (> or < 3 weeks); treatment completion; and re-presentation; substance use; injecting; housing status; fatal overdose; and acquisitive crime. FINDINGS In participating areas, there were relative decreases in rates of: treatment initiation [difference-in-differences odds ratio (DID OR) = 0.17, 95% confidence interval (CI) = 0.14, 0.21]; treatment completion (DID OR = 0.60, 95% CI = 0.53, 0.67); and treatment completion without re-presentation (DID OR = 0.63, 95% CI = 0.52, 0.77) compared with non-participating areas. Within treatment, relative abstinence (DID OR = 1.50, 95% CI = 1.30, 1.72) and non-injecting (DID OR = 1.32, 95% CI = 1.10, 1.59) rates were improved in participating areas. No significant changes in mortality, recorded crime or housing status were associated with the scheme. CONCLUSION Drug addiction recovery services in England that are commissioned on a payment-by-results basis tend to have lower rates of treatment initiation and completion but higher rates of in-treatment abstinence and non-injecting than other services.