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Background: Schizophrenia is highly expensive in calculable and incalculable costs. Measures which impact the cost in the most severely affected are likely to produce the greatest cost reductions. Studies regarding clozapine in the USA have demonstrated clear cost-effectiveness, despite the high prescription costs. There are no prior UK studies., Method: We performed a cost-effectiveness analysis comparing the three years prior to commencing clozapine to the period following establishment of clozapine treatment (mean 36.4 months) for 26 patients with chronic schizophrenia or schizoaffective disorder., Results: There was a significant improvement in all clinical ratings applied (and a mean net saving of ponds 3768 per annum). The cost-effectiveness of clozapine was double that of conventional neuroleptics (15.2 pre-, 33.0 post-clozapine, P < 0.005)., Conclusions: As a naturalistic study our data provide valuable information on the cost-effectiveness of clozapine in the UK. Our methodology could be applied in a community setting or in the study of another atypical neuroleptic.