Background Sub-district hospitals in Tamil Nadu are critical in providing essential healthcare services, but they face significant challenges that can lead to increased patient referrals to higher-level facilities. High referral rates can overburden tertiary care centers, delay specialized treatment, and affect patient outcomes. This study aims to identify the root causes of increased referral rates in a sub-district hospital and implement targeted interventions to reduce unnecessary referrals. Methods A descriptive study was conducted at Sriperumbudur sub-district hospital in Tamil Nadu from May to August 2023. The study utilized a root cause analysis (RCA) approach, incorporating qualitative data from brainstorming sessions with healthcare providers and administrative staff, and quantitative data from hospital records on referral rates. A fishbone (Ishikawa) diagram was employed to map causal factors, and Pareto and bar charts were used to analyze and present referral trends. Interventions were implemented using the Plan-Do-Study-Act (PDSA) cycle. Results The analysis identified several key factors contributing to high referral rates, including inadequate diagnostic services, insufficient staffing, and lack of essential resources such as CT scans and blood components. Following targeted interventions, referral rates decreased significantly from 101 cases in May-June 2023 to 52 cases in July-August 2023 highlighting a reduction of over 48%. The most notable reductions were seen in referrals for road traffic accidents with head injury (38.7%) reduction, chronic kidney disease (CKD)/hypertension (HT)/diabetes mellitus (DM) (46.2%) reduction, and crush injuries (45.5%) reduction. Conclusions The RCA revealed systemic issues that were contributing to increased referral rates at the sub-district hospital. Implementing targeted interventions based on the RCA findings led to a significant reduction in referrals, improving patient care at the local level and alleviating the burden on tertiary care centers. This study underscores the importance of continuous quality improvement initiatives in strengthening healthcare delivery at the sub-district level.