Risperidone and olanzapine are novel antipsychotic medications that compete as first-line agents in treating patients with schizophrenia. The objective of this paper is to review the available evidence regarding the effectiveness and cost of risperidone versus olanzapine. We reviewed both randomised and peer-reviewed non-randomised head-to-head (olanzapine versus risperidone) studies in populations with schizophrenia. The studies were selected through a MEDLINE search.Risperidone and olanzapine provide control of positive, negative and global symptoms of schizophrenia. Each drug has a distinct adverse effect profile. Five randomised trials comparing risperidone with olanzapine suggested grossly similar efficacy in the first 2 months of treatment, with some results indicating advantages for olanzapine over the longer term. Only two of the trials included measures of service utilisation. One had 28-week follow-up, and the other followed patients for 12 months but had small sample sizes. Both experimental and naturalistic studies indicated that the acquisition cost of olanzapine is about 50% greater than for risperidone at dose levels commonly used for the treatment of schizophrenia. The only experiment with 12-month total treatment cost data found essentially equivalent costs for patients assigned to olanzapine or risperidone, showing that there are circumstances where total cost is similar in spite of the higher drug acquisition cost of olanzapine. Most retrospective studies also reported comparable total cost. Few studies gave enough information to evaluate cost effectiveness. The clear difference in acquisition cost of these two medications was rarely reflected in overall treatment cost in the studies we reviewed.Overall, our review of the literature highlights that there is inadequate evidence to distinguish the relative total cost of care associated with risperidone versus olanzapine, although accumulating evidence suggests the difference is small. This population-based conclusion does not indicate which medication is more costly or more cost effective for a particular patient; this depends on each patient’s response to each medication.