OBJECTIVES: Schizophrenia-related costs in the US have been estimated at over $60 billion annually.  Although state Medicaid plans cover a large percent of the population with schizophrenia, other non-Medicaid state budgets are responsible for covering the costs for patients who are incarcerated or admitted to state-operated inpatient mental health facilities. The purpose of the study was to estimate the annual direct and indirect costs for Texas Medicaid patients with schizophrenia.  METHODS: Direct costs were estimated from the perspective of the state of Texas as payer using data from 2006-2008 adjusted to 2008 US dollars.  Direct Texas Medicaid costs were extracted from claims files (about 9,000 patients per year).  State-operated inpatient mental health facility costs were provided in aggregated form by the Texas Department of State Health Services. Data from the Bureau of Justice Statistics and recent literature were used to estimate incarceration costs. Medical Expenditure Panel Survey data from 2005-2008 were used to estimate indirect costs per patient-year.  Direct costs to the patient (e.g. travel and unreimbursed expenses) were not captured. RESULTS: The schizophrenia-related mean annual per patient cost was estimated at $31,511 - direct and indirect costs were $14,607 (46.3%) and $16,904 (53.7%), respectively.  Direct costs to Medicaid, state-operated inpatient mental health facilities, and jails accounted for 31.6%, 1.1%, and 13.6% of total costs, respectively.   Most of the indirect costs (98%) were due to morbidity-associated productivity losses, with the remaining small portion were due to mortality-associated productivity losses (early death/suicide), and unpaid caregivers’ lost productivity.  CONCLUSIONS: This was the first study that estimated both direct and indirect costs of schizophrenia in the Texas Medicaid population.  Direct medical costs paid by Medicaid accounted for only about one-third of total costs. These cost estimates may help health care providers and policymakers better understand the economic burden of schizophrenia.