Objective - After a review of recent developments in the economic evaluation of mental health care, the study described in this paper suggests a methodology for the measurement and evaluation of costs in the Italian psychiatric system. Method and results - To conduct such an evaluation it is necessary to identify all relevant services, collect data on patients' receipt or utilization of health services (direct costs) and other services and resources within the socio- economic system (indirect costs), and to attach monetary values for the costs. A detailed unit cost list (LICU) was constructed for facilities available at South-Verona Community Psychiatric Service (CPS), as well as in many other community-based psychiatric services in Italy. This list covers psychiatric services, other public and private health services, criminal justice services, voluntary organisations and self-help groups. The procedure for calculating costs in three of these facilities (hospital inpatient service, psychiatric outpatient service and rehabilitation groups) are described in this paper in detail. A new instrument (ICAP) was developed to collect the data required to calculate the costs of community care for individual patients. In order to check the applicability and comprehensibility of the instrument, and the time ne- eded for its administration, the ICAP was tested with five patients. Conclusions - It will be interesting to utilise ICAP and LICU in a larger sample. The methodology described here would provide the basis for epidemiologically-based studies, as well as exploration of the factors which predict cost differences (such as socio-demographic characteristics, diagnosis, psychiatric history, ecc). It is important to emphasise the insights for policy and practice which can flow for the merged examination of costs, needs and outcomes. This research is presently in progress in South-Verona.