Purpose To elicit residents' perspectives on rewards and challenges of caring for ambulatory patients with chronic illness and ways to improve their education in caring for these patients. Method The authors conducted a qualitative study with internal medicine residents during ambulatory medicine block rotations at three academic health centers from October 2011 through February 2012. Focus group questions covered rewards and challenges of caring for patients with chronic illness and strengths and weaknesses of residency education therein, and the Chronic Care Model provided a framework for interpretation. Qualitative analysis was used to identify themes. Results Five focus groups were conducted with 28 residents. Discussions yielded 224 comments, which were categorized into 5 domains and 36 themes. Twelve themes related to perceptions of challenges in providing care, and 3 themes related to perceptions of rewards in providing care. Eight themes focused on strategies to improve the patient experience. Strengths of the residency program were identified in 7 themes. Six themes related to ways for improving learning about caring for patients with chronic disease in the ambulatory setting. Conclusions Residents perceived rewards, challenges, and barriers in caring for patients with chronic illness in the ambulatory setting, from providers' and patients' perspectives. They have developed strategies to provide effective patient care. Residents identified best practices in their residency for resident education and patient care and also made suggestions for improvement. Findings have significant implications for residency education and practice redesign in the 21st century for care of patients with chronic illness.