OBJECTIVES: Schizophrenia is a severe chronic psychiatric disease with high treatment costs and social burden.  Iloperidone is a recently FDA approved atypical antipsychotic medication for the acute treatment of adult patients with schizophrenia.  The aim of this study is to compare the efficacy and cost of oral iloperidone with olanzapine and haloperidol in a cohort with acute schizophrenia over a 1 year period. METHODS: Published literature and clinical expert opinions were used to populate a Markov simulation model using TreeAge Pro 2009 software.  The model consists of nine 6-week cycles.  Clinical response is defined as ≥20% reduction in Positive and Negative Syndrome Scale total scores (PANSS-T) from baseline.  Responders can exist in any of the following health states at the end of any cycle: Response with no adverse events (AEs), Response with mild-to-moderate AEs, Response with severe AEs, Relapse, Dropout and Suicide.  Relapse is defined as an increase in PANSS-T scores ≥25% following a response period of more than 3 cycles.  Efficacy was determined as the average time spent in the Response with no AEs or Response with mild-to-moderate AEs states.  Direct costs included hospitalization, side effects, drugs and outpatient care costs. RESULTS: The mean time patients spent as responders with no AEs or responders with mild-to-moderate AEs was estimated to be 5.76 cycles (241.9 days) with iloperidone compared to 5.96 cycles (250.3 days) and 6.17 cycles (259.1 days) with haloperidol and olanzapine treatments, respectively.  The mean monthly treatment costs were $2521, $2424 and $2292 for iloperidone, haloperidol and olanzapine, respectively. CONCLUSIONS: Using a Markov simulation model, olanzapine was more effective than either iloperidone or haloperidol with associated lower costs.  Patients spent on average less time as responders with iloperidone treatment compared to haloperidol.  These results may be of use when determining the most cost-effective treatment strategy for acute schizophrenia.