To assess the effect of the tobacco tax cuts made in 1994 on the smoking habits of Canadians. Population-based retrospective cohort study. Data from the Survey on Smoking in Canada conducted by Statistics Canada on 11,119 respondents 15 years of age and older, who were interviewed about their smoking habits on 4 occasions, approximately every 3 months from January 1994 to February 1995. Changes in smoking prevalence, incidence, quit rates and mean number of cigarettes smoked per day in the provinces where tobacco taxes were cut and in those where taxes were not cut. During the survey, smoking prevalence decreased in all provinces, whether or not cigarette taxes had been cut. However, the prevalence of smoking was greater in the provinces where tobacco taxes had been cut than in those where they had not, and this difference increased from 2.0% at the beginning of the survey to 3.4% by the end (p < 0.001). In addition, rates of starting cigarette smoking were higher and smoking quit rates were lower in the provinces where taxes had been cut than in those where taxes had not been cut. Although smoking rates are declining in Canada, tobacco tax cuts appear to have slowed the rate of decline by inducing more nonsmokers to take up smoking and leading fewer smokers to quit.