With the widespread use of atypical antipsychotics over the past several years, adverse metabolic effects have emerged as the most serious medical consequences of pharmacotherapy with some of these agents. Initially, weight gain and obesity were observed (especially with clozapine and olanzapine), but subsequently, type 2 diabetes and dyslipidemia became apparent as well. Further, many reports suggest that sudden and severe (occasionally fatal) diabetes ketoacidosis (DKA) can emerge during treatment with some atypical antipsychotics, even in the absence of adiposity. A marked increase of serum lipids (especially triglycerides) has also been reported, to varying degrees, with different atypicals. This article reviews the data regarding metabolic dysfunction in patients with psychosis (schizophrenia and bipolar disorder). Populations with psychosis have a 2–3-fold higher prevalence of diabetes even before treatment with any antipsychotics, suggesting a possible genetic linkage or comorbidity; this was confirmed with glucose regulation studies in schizophrenia and mania. The induction of type 2 diabetes with atypicals has further increased the prevalence of noninsulin-dependent diabetes from about 6%–8% to 11%–15% according to recent studies, and even higher rates of subclinical hyperglycemia. Serious weight gain (eg, 26–29 lbs after 1 year of clozapine or olanzapine treatment) is an important risk factor, but sudden DKA has now been reported in patients with minimal weight gain, suggesting alternative mechanisms, such as insulin resistance, as a direct effect of some atypicals. Psychiatrists can reduce the risk of metabolic disorders in schizophrenia and bipolar disorder by avoiding the use of certain atypicals as first-line treatment in patients with a personal or family history of diabetes, obesity, and hyperlipidemias. Regulatory agencies in some countries have already taken action in this regard.