Prior to the election, the Liberal Party held 19 of the 35 seats, a majority in the House of Assembly. Labor held 11 and the Tasmanian Greens held five.
Before the election Groom had increased the wages of all serving politicians by 40%; this was done early in his term and he had hoped the electorate would forget about it. The electorate was reminded in 1996, by the "Extremely Greedy 40% Extra Party" who fielded candidates. Bumper stickers were placed on cars around the state reading "40% never forget" although politicians' wages had been on freeze for some time and the rise was in keeping with inflation.
Labor polled well in Denison and Franklin. The Tasmanian Greens suffered a state-wide swing against them and lost one of their seats (Lance Armstrong in Bass) but gained the balance of power because Di Hollister narrowly held onto her seat in Braddon, while the party received a high vote in Denison.
The Extremely Greedy 40% Extra Party polled 0.8% of the vote, well behind winning a seat, but its appearance on the ballot paper succeeded in reminding voters of the previous wage increases. Independent Bruce Goodluck narrowly won a seat at the expense of the Liberals' Paul Harriss. The Australian Democrats ran four candidates in Franklin but were unsuccessful at winning a seat.
Labor had the numbers to enter minority government with the Greens, but had refused to do so. The Liberal premier, Ray Groom, who had announced that the Liberals would not govern in minority, was forced to resign and was replaced by Tony Rundle, who reached an informal agreement with the Greens.
This election was the last time that Tasmanians voted 35 members into parliament because it was reduced to 25 members in 1998.