Recent developments in psychometric theory have important implications for the development and validation of the instruments used in psychotherapy research. This article illustrates how the advances in latent trait and item response theory (IRT) have distinct advantages over classical test theory. The basic assumptions of IRT (unidimensionality, local independence, and monotonicity) and the concepts common to all four of the basic IRT models (item characteristic curve, item information function, and test information function) are reviewed. IRT methods are illustrated using responses to a psychotherapy outcome instrument from a large data set of a commercial health plan.