Patients with mental disorders show many biological abnormalities which distinguish them from normal volunteers; however, few of these have led to tests with clinical utility. Several reasons contribute to this delay: lack of a biological 'gold standard' definition of psychiatric illnesses; a profusion of statistically significant, but minimally differentiating, biological findings; 'approximate replications' of these findings in a way that neither confirms nor refutes them; and a focus on comparing prototypical patients to healthy controls which generates differentiations with limited clinical applicability. Overcoming these hurdles will require a new approach. Rather than seek biomedical tests that can 'diagnose' DSM-defined disorders, the field should focus on identifying biologically homogenous subtypes that cut across phenotypic diagnosis--thereby sidestepping the issue of a gold standard. To ensure clinical relevance and applicability, the field needs to focus on clinically meaningful differences between relevant clinical populations, rather than hypothesis-rejection versus normal controls. Validating these new biomarker-defined subtypes will require longitudinal studies with standardized measures which can be shared and compared across studies--thereby overcoming the problem of significance chasing and approximate replications. Such biological tests, and the subtypes they define, will provide a natural basis for a 'stratified psychiatry' that will improve clinical outcomes across conventional diagnostic boundaries.