Peri-articular soft-tissue masses or 'pseudotumours' can occur after large-diameter metal-on-metal (MoM) resurfacing of the hip and conventional total hip replacement (THR). Our aim was to assess the incidence of pseudotumour formation and to identify risk factors for their formation in a prospective cohort study. A total of 119 patients who underwent 120 MoM THRs with large-diameter femoral heads between January 2005 and November 2007 were included in the study. Outcome scores, serum metal ion levels, radiographs and CT scans were obtained. Patients with symptoms or an identified pseudotumour were offered MRI and an ultrasound-guided biopsy. There were 108 patients (109 hips) eligible for evaluation by CT scan at a mean follow-up of 3.6 years (2.5 to 4.5); 42 patients (39%) were diagnosed with a pseudotumour. The hips of 13 patients (12%) were revised to a polyethylene acetabular component with small-diameter metal head. Patients with elevated serum metal ion levels had a four times increased risk of developing a pseudotumour. This study shows a substantially higher incidence of pseudotumour formation and subsequent revisions in patients with MoM THRs than previously reported. Because most revision cases were identified only after an intensive screening protocol, we recommend close monitoring of patients with MoM THR.