Reorganization of motor circuits in the cerebral cortex is thought to contribute to recovery following stroke. These can be examined with transcranial magnetic stimulation (TMS) using measures of corticospinal tract integrity and intracortical excitability. However, little is known about how these changes develop during the important early period post-stroke and their influence on recovery. We used TMS to obtain multiple measures bilaterally in a group of 10 patients during the early days and weeks and up to 6 months post-stroke, in order to examine correlations with tests of hand function. Ten age-matched healthy subjects were also studied. After stroke, day-to-day variation in performance was unrelated to physiological measures in the first 3 weeks. Measures of corticospinal integrity averaged over the same period correlated well with hand function, but this relationship became weaker at 3 months. In contrast, most intracortical excitability measures did not correlate acutely but did so strongly at 3 months. Thus in the acute stage, patients’ performance is limited by damage to corticospinal output. Improved performance at 3 months may depend on reorganization in alternative cortical networks to maximize the efficiency of remaining corticospinal pathways—intracortical disinhibition may aid recovery by promoting access to these networks.