Clozapine, an antipsychotic agent with relatively weak central antidopaminergic activity, displays atypical pharmacological and clinical properties vis-a-vis the classic antipsychotics. Thus, clozapine is effective against both the positive and negative symptoms of schizophrenia and has a low propensity to cause extrapyramidal effects. Furthermore, clozapine is effective in a substantial proportion (up to 60%) of patients who are refractory to or intolerant of standard antipsychotic therapy. Despite its promising therapeutic potential, the relatively high incidence of clozapine-induced agranulocytosis (approximately 1% of patients) and the associated need for regular haematological monitoring currently restricts the drug's use to the treatment of chronic and severe schizophrenia refractory to standard antipsychotic therapy, and to those patients unable to tolerate such therapy. In the US, the current wholesale price of clozapine (exclusive of monitoring) is $US2.85 per 100mg tablet, amounting to $US4160 annually (1992 dollars) at the most commonly prescribed dose of 400 mg/day ($US2.40 per tablet and $US3510 annually to state programmes through Medicaid reimbursement legislation). In the UK, the annual cost of clozapine (at the average dose of 300 mg/day), inclusive of blood monitoring, is 1806 British pounds sterling (1992 pounds). Although the acquisition cost of clozapine is high in comparison with that of standard antipsychotics, preliminary cost-effectiveness estimates in patients with treatment-resistant schizophrenia suggest that the clinical benefits of the drug (viz. improved psychopathology, social functioning and quality of life) may confer medium to long term economic benefits, primarily by reducing the need for psychiatric hospital services. This effect is most likely to be seen on long term ( greater than or equal to 2 years) maintenance therapy with clozapine. Savings in hospital costs are, however, likely to be offset, at least initially, by increased reliance on outpatient services, and clozapine may therefore confer additional economic costs during the first year or so of treatment. In the longer term, however, the initial cost investment may be recouped in the form of savings to psychiatric institutions and insurers.