As the number of children orphaned by AIDS (Acquired Immunodeficiency Syndrome) has reached 17.3 million, most living in resource-poor settings, interest has grown in identifying and evaluating appropriate care arrangements for them. In this study, we describe the community-based family-style group homes ('group homes') in rural China. Guided by an ecological framework of children's wellbeing, we conducted a series of ethnographic observations, in-depth interviews and group discussions in the rural areas of Henan Province, which has been severely impacted by the AIDS endemic through commercial blood collection. Based on our observations and discussions, group homes appear to provide stable and safe living environments for children orphaned by AIDS. Adequate financial support from non-government organizations (NGOs) as well as the central and provincial governments has ensured a low child-caregiver ratio and attention to the basic needs of the children at group homes. The foster parents were selected from the local community and appear to have adequate qualifications and dedication. They receive a monthly stipend, periodical evaluation and parenting consultation from supporting NGOs. The foster parents and children in the group homes have formed strong bonds. Both children and foster parents reported positively on health and education. Characteristics of community-based group homes can be replicated in other care arrangements for AIDS orphans in resource poor settings for the optimal health outcomes of those vulnerable children. We also call for capacity building for caregivers and communities to provide sustainable and supportive living environment for these children.