BACKGROUND: Schizophrenia imposes a heavy economic burden due to its early onset, high morbidity and mortality, chronicity, and limited response to traditional pharmacotherapy. Newer antipsychotics such as risperidone improve both negative and positive symptoms, and impact on economic and quality-of-life measures. However, the acquisition cost of risperidone is higher than that of traditional agents. An economic evaluation was performed to compare risperidone with oral haloperidol, depot haloperidol, and fluphenazine, to assess relative differences in costs and consequences. METHODS: A cost-utility analysis was performed using a decision analytic model with the perspective of the Ontario government (Canada). Probabilities including success rates, drop outs due to adverse events and EPS were determined from a systematic review of the literature. Costs were obtained from the provincial formulary and fee schedules, standard lists for community resources, and hospital case costing. Utilities were measured in 25 stable patients with schizophrenia, using the Standard Gamble technique, and combined with the clinical outcomes into a measure of quality-adjusted life years (QALYs). RESULTS: Risperidone dominated all comparators, having the highest clinical success rate (67%), greatest number of QALYs (0.89) and lowest expected costs (CDN$69,885) over a 1-year period. Fluphenazine had the highest expected cost (CDN$82,264) and lowest number of QALYs (0.85). Both oral and depot haloperidol were associated with higher total expected costs and lower number of QALYs than risperidone. CONCLUSIONS: The use of risperidone in place of haloperidol in Canada would be associated with annual savings of CDN$832 million in hospital expenditures, CDN$113 million in incremental drug expenditures, and CDN$180 million in annual incremental community care expenses. Prospective validation of our findings, as well as comparisons with the US and Europe, may be warranted.