OBJECTIVES To examine the risk of developing diabetes among children and adolescents who received atypical antipsychotic drug. METHODS This study is a retrospective cohort analysis using 2003-2004 Texas Medicaid claims data. Patients were included in the cohort if they met the following criteria: 6 to 18 years of age, new users of atypical antipsychotics and had not received a diagnosis of diabetes (ICD-9-CM code: 250.xx) or a prescription claim of an anti-diabetic drug both before and one month after the initiation of an antipsychotic treatment. Risk of newly developed diabetes following antipsychotic treatment was observed during a 12 month follow-up period. Kaplan-Meier survival curves and Cox proportional-hazards regression model were employed to examine the time dependent risk (hazard) of diabetes and hazards ratio were obtained. Age, gender, race and exposure to other diabetogenic medications were controlled in the analysis. RESULTS A total of 4096 patients were identified as new atypical antipsychotic users. The average age of the cohort was 11 years, most of the patients were male (65%), and Hispanics (36.5%). Cox-proportional hazard model analysis revealed no significant association between use of atypical antipsychotic use and risk of diabetes (Hazards Ratio, HR=1.11, 95% CI = 0.81-1.53). Children in the older age group of 15-18 years, females and Hispanics had higher risk of developing diabetes. Concurrent treatments with corticosteroids, beta-blockers, thiazides and antidepressants were also associated with increased incidence of diabetes. CONCLUSIONS Our results indicate that there is no increase in the risk of developing diabetes in pediatric patients receiving atypical antipsychotics. The discrepancy in the findings between adults and children implies that psychotropic medications might function differently in pediatric population from adults. It is necessary to comprehensively assess the risks associated with common off-label medications, such as atypical antipsychotics, in children and adolescents.