The pharmacoeconomics of antipsychotic therapy is discussed. Schizophrenia is a chronic illness that develops early in life and has a long-term impact on the health care system, including costs. Treatment goals therefore include a reduction in the rate of rehospitalization, a primary source of the health care costs related to this disease. Atypical antipsychotics are often associated with improved efficacy and better tolerability than the older, conventional antipsychotic agents, and their use in schizophrenia has increased. However, the atypical drugs have higher acquisition costs that may limit their use in the cost-influenced health care environment. These acquisition costs vary widely among drugs and are often dependent on dosage. Analysis of the use of atypical antipsychotics in the Veterans Affairs Health System and other health systems demonstrates that, despite their higher acquisition costs, significant health and economic benefits can be obtained compared with conventional agents. Given the approximately equivalent efficacy demonstrated thus far by atypical antipsychotics, an appropriate cost-reduction strategy may include using the agent with the lowest acquisition cost.