A software system (The Observer) was used in combination with a hand-held event recorder to study the ecology of older people with dementing illness who were residents of special care units in a nursing home. Methods and problems in the use of this behavior stream technology are discussed. Directly observed behaviors, positions, locations, and contexts were observed in real time on 154 residents over 16 10-minute periods each. The resulting observations were downloaded directly into a personal computer for analysis. Reliability and programming processes for the production of individual subject analytic files are reported. Descriptive data displayed characteristics of the ecology of these residents: concentration of time in a single spatial area (lounge, 73% of all behavior), alone (83%), inactive gaze (40%), and totally passive behaviors (24%). Social interaction (13%) and positively engaged activities (4%) were infrequent. Concurrent validity was tested through correlations between behavior stream aggregate time and core measures of function. Although the sizes of the correlations were modest, their pattern generally confirmed the expected relationships. Advantages and disadvantages of the method are discussed.