The National Assembly of Lao People's Democratic Republic (Laos) approved the Health Sector Reform Strategy in 2012, which called for an assessment as to whether Laos should introduce hospital autonomy, and if so, in which ways. The purpose of this study is to assess the status quo of hospital governance in Laos and propose policy suggestions for hospital autonomy in the country. We formulated an analytic framework for hospital autonomy based on previous work by other researchers, collected qualitative data through key informant interviews and focus group discussions, and also performed secondary data analysis. Public hospitals in Laos enjoyed some informal autonomy with little accountability and Laos is facing key challenges of hospital governance. As a result, introducing hospital autonomy in Laos could bring risks, benefits and debates. Before Laos decides on granting autonomy to its public hospitals, we strongly suggest that the government do pilot in selected public hospitals with well‐regulated governance framework first and conduct rigorous evaluations to examine whether the granted autonomy leads to the intended social goals of equity, quality, efficiency and sustainability. We recommend residual claimants should be monitored by the government and by the society with open and transparent approach, and active measures should be taken to improve performance and ensure social functions. The study findings may also provide some suggestions for low‐ and middle‐income countries, which are contemplating the introduction of hospital autonomy in the public sector. Copyright © 2015 John Wiley & Sons, Ltd.