OBJECTIVES:  Antipsychotic drugs are used to treat behavioral and psychological symptoms of dementia despite of their significant safety concerns. This study examined patient and contextual factors associated with initiation of antipsychotics among nursing home residents with dementia. METHODS: This retrospective cohort study used Medicare claims, Minimum Data Set, and the Online Survey, Certification, and Reporting data from 2007-2009. The study sample consisted of short-stay (nursing home stay ≤100 days) elderly nursing home residents with dementia. Patient level antipsychotic initiation was the outcome measure. Multilevel Andersen Behavioral model was used to select patient and contextual level predisposing, enabling and need factors. Contextual level nursing home antipsychotic initiation rate was categorized into tertiles (low, medium, or high) based on proportion of dementia residents newly started on antipsychotics during the baseline period. The association of predisposing, enabling and need factors with initiation of antipsychotics was evaluated using hierarchical logistic regression model. RESULTS: A total of 9,611 patients was identified residing in 2,548 nursing homes. Overall antipsychotic initiation rate was 11.2%; nursing home level initiation rate was 0% in 890, <12.6% in 659 (low), 12.6%-16.7% in 465 (medium) and 16.8%-70% in 534 (high) nursing homes. Nursing home level antipsychotic initiation rate was associated with patient’s increased likelihood of initiating antipsychotic (Medium: OR 1.36, 95% CI 1.09-1.71, High: OR 1.48, 95% CI 1.20-1.82). Among patient level factors, predisposing (female), enabling (dementia unit, mood indicators, mild and moderate/severe behavior, moderate and severe cognitive performance), and need (drug abuse, psychosis, antianxiety medication use) were associated with higher likelihood of antipsychotic initiation. CONCLUSIONS:  Both patient and contextual level predisposing, enabling and need factors influenced initiation of antipsychotics among nursing home residents with dementia. The study revealed that antipsychotic prescribing practices play an important role in the use of antipsychotics in nursing home residents with dementia.