OBJECTIVES: To assess health outcomes, economic impacts, and cost-effectiveness of a Beijing municipal government funded free-drug program (FDP) in the community residents with schizophrenia in Beijing, China. METHODS: Beijing registered schizophrenia patients were randomly selected to create FDP cohort (2007 patients) and non FDP (NFDP) cohort (2001 patients). A cross-sectional survey was conducted in the two cohorts in August 2015 to collect information for patient baseline characteristics, Brief Psychiatric Rating Scale (BPRS), WHOQOL-BREF, social function defect screening scale (SDSS), family burden scale (FBS), and costs in the last year. Propensity score methods were used for adjusted comparisons of measured outcomes. The patient survey based cost-effectiveness analysis compared FDP cohort versus NFDP cohort from the social perspective. The impact of free drug delivery service and once-monthly paliperidone injection on the cost-effectiveness of FDP was also explored. RESULTS: FDP cohort had significantly higher rates of unemployment (48.8% vs. 37.3%, p<0.001), disability (91.2% vs. 64.1%, p<0.001) and comorbidity (34.9% vs. 28.8%, p<0.001). The two propensity score matched cohorts (110 pairs) were highly comparable in BPRS, WHOQOL-BREF, SDSS, and indirect costs. However, the matched FDP cohort had non-significant reductions of FBS (17.3 vs. 20.1, p=0.077) and direct medical costs (RMB 2,469 vs. RM 5,184, p=0.065; 1 RMB=0.16 US$). Baseline incremental cost-effectiveness ratio (ICER) per gained quality-adjusted life years (QALY) for FDP was 1.480 gross domestic product per capita (GDPPC) of China in 2015. Providing free drug delivery services and treating patients with once-monthly paliperidone injection could reduce the ICER per gained QALY to 0.625 GDPPC and 1.038 GDPPC, respectively. CONCLUSIONS: Beijing municipal government funded FDP enrolled schizophrenia patients with lower social economic status and more advanced disease. This FDP reduced patient family burden and direct medical costs. The cost-effectiveness of the FDP was attractive and could be substantially improved by providing free drug delivery service and once-monthly paliperidone injection treatment.