The major cost to the health care system in treating schizophrenia is hospital based care. To help estimate the cost of treating schizophrenia and to assess the effectiveness of treatment comprehensive data on rehospitalization rates are appropriate. OBJECTIVES: To conduct a systematic review of the literature on rehospitalization rates for schizophrenia. METHODS: Published clinical trials of antipsychotic medications and large representative naturalistic studies were systematically identified by conducting searches of the Cochrane Library Schizophrenia Group's Register and MEDLINE databases. Identified sources were supplemented with a reference search for additional relevant literature. Studies were included if they were published from 1990-2004 and reported 1-year rehospitalization rates among patients not hospitalized. This included (a) clinical trials of outpatients or of recent discharge patients; and (b) naturalistic cohorts followed after discharge from hospital. Hospitalization rates were adjusted based on the sample size. Studies were stratified based on the patient group treated. RESULTS: Patients after their first hospitalization for schizophrenia (first episode patients; n=36,192) from case registries in 5 nations had an average annual readmission rate of 33% (range 15-55%). Of stable response patients, comparison between patients on first generation (conventional; n= 265) and second generation (novel; n=628) antipsychotic regimes indicated that those on second generation were significantly less likely to be readmitted (Mean difference=3.02; 95% CI=1.75:4.29). Similarly, of patients treated for clinical exacerbation comparison between patients on first (n=761) and second generation (n=1141) regimes indicated that those on a second generation regime were significantly less likely to be readmitted (Mean difference= 5.07; 95% CI= 4.41:5.72). CONCLUSION: Rehospitalization rates were significantly lower for patients on second than first generation antipsychotics. This finding appears to be robust across patient groupings. The use of second generation antipsychotics may reduce the cost of care.