The present study evaluates the effect of service climate on customer loyalty by incorporating resident perceptions of service quality regarding their interaction with staff members in a nursing home. The study also explores the mediating role of service quality between service climate and customer loyalty. A conceptual two-level model linking service climate to customer loyalty was developed and analyzed using data collected from 197 nursing staff members and 477 residents in 44 nursing homes in Taiwan. The results show that service climate improves service quality and customer loyalty and provide empirical support for the mediating role of service quality between service climate and customer loyalty. Both theoretical and practical implications are discussed as well as future research directions.