Schizophrenia continues to be a major healthcare expenditure in our society. Antipsychotic drugs were introduced in the 1950s and revolutionised its treatment; however, these drugs also produced numerous adverse effects. The direct and indirect costs of schizophrenia were estimated to total $US 33 billion in 1990. Prior to the approval by the US Food and Drug Administration (FDA) of clozapine in 1989, no new antipsychotics had been introduced in the US for at least 10 years. Clozapine was shown to be an 'atypical' antipsychotic as some treatment-resistant patients with schizophrenia responded. Negative symptoms associated with schizophrenia were also shown to improve with clozapine. However, because of the problem of agranulocytosis and the need for intensive blood count monitoring with clozapine, its usage became restricted. The cost of using clozapine was shown to be substantially higher than the older 'typical' antipsychotics. This increased cost with clozapine resulted in its careful evaluation on the healthcare environment. Retrospective studies reported that hospitalisation days and number of violent episodes decreased with clozapine. Risperidone represents a new class of novel antipsychotics which, like clozapine, can improve the negative symptoms of schizophrenia and produce only minimal extrapyramidal symptoms (EPS), but do not cause agranulocytosis. However, again, the cost of risperidone has resulted in its restricted use, especially in managed care organisations. Pharmacoeconomic studies have shown that risperidone decreases the overall healthcare costs among patients with schizophrenia. Other novel antipsychotic drugs such as olanzapine and quetiapine were recently approved by the FDA and their clinical efficacy closely resembles risperidone. Further pharmacoeconomic and outcome studies are needed to evaluate the impact of these novel agents versus the older typical antipsychotics on our healthcare system.