Thermal capsular shrinkage has rapidly become a common procedure for a variety of shoulder conditions usually associated with instability, although clinical data on outcomes are limited. The objective of this study was to identify risk factors for poor outcome after thermal capsulorrhaphy. Of 106 patients who underwent thermal shrinkage, 15 patients with treatment failures were identified. The mean time to failure after the procedure was 6.3 months (range, 1 to 16). Previous operations and multiple recurrent dislocations were associated with poor outcome at a highly significant level. Multidirectional instability and participation in contact sports did not attain statistical significance as risk factors. However, statistical power in these two comparisons was insufficient to exclude them as potential risk factors. A concomitant procedure at the time of thermal capsulorrhaphy was not associated with poor outcome. The data from early treatment failures can be useful in guiding patient selection for thermal capsulorrhaphy. This procedure may be of limited value for patients who have had prior operations or have a history of multiple dislocations. The data also suggest that thermal capsulorrhaphy should be used cautiously in patients with multidirectional instability or in those who are involved in contact sports.