BACKGROUND: Second-generation antipsychotics may have few advantages over older, cheaper drugs, except for possibly reduced risk of tardive dyskinesia. AIMS: To evaluate the cost-effectiveness of second-generation antipsychotics with regard to reducing tardive dyskinesia. METHOD: Literature was reviewed on risk of tardive dyskinesia with second-generation antipsychotics; on severity, duration and impairment of tardive dyskinesia; and on the relationship of this disorder to quality of life and quality-adjusted life-years (QALYs). Diverse cost and benefit assumptions and of 1-year and 5-year planning horizons were examined in a deterministic sensitivity analysis. RESULTS: Estimating 0.143 QALYs lost per case of severe tardive dyskinesia, 1-year cost-effectiveness cumulative estimates ranged from pounds 74,000 (dollars 149,000) to pounds 342,000 (dollars 683,000) per QALY, all above the conventional policy threshold of pounds 25,000 (dollars 50,000). CONCLUSIONS: Reduction of tardive dyskinesia with second-generation antipsychotics appears unlikely to meet standards for cost-effectiveness.