BACKGROUND:: Despite the advantages of electronic health record (EHR) systems, the adoption of these systems has been slow among community-based physicians. Current studies have examined organizational and personal barriers to adoption; however, the influence of market characteristics has not been studied. PURPOSE:: The purpose of this study was to measure the effects of market characteristics on EHR adoption by physicians. METHODOLOGY:: Generalized hierarchal linear modeling was used to analyze EHR survey data from Florida which were combined with data from the Area Resource File and the Florida Office of Insurance Regulation. The main outcome variable was self-reported use of EHR by physicians. FINDINGS:: A total of 2,926 physicians from practice sizes of 20 or less were included in the sample. Twenty-one percent (n = 613) indicated that they personally and routinely use an EHR system in their practice. Physicians located in counties with higher physician concentration were found to be more likely to adopt EHRs. For every one-unit increase in nonfederal physicians per 10,000 in the county, there was a 2.0% increase in likelihood of EHR adoption by physicians (odds ratio = 1.02, confidence interval = 1.00-1.03). Health maintenance organization penetration rate and poverty level were not found to be significantly related to EHR adoption. However, practice size, years in practice, Medicare payer mix, and measures of technology readiness were found to independently influence physician adoption. PRACTICE IMPLICATIONS:: Market factors play an important role in the diffusion of EHRs in small medical practices. Policy makers interested in furthering the adoption of EHRs must consider strategies that would enhance the confidence of users as well as provide financial support in areas with the highest concentration of small medical practices and Medicare beneficiaries. Health care leaders should be cognizant of the market forces that enable or constrain the adoption of EHR among their practices and those of their competitors. © 2008 Lippincott Williams & Wilkins.