This paper examines the costs and cost-effectiveness of psychosocial treatment for personality disorder in a controlled study. Using well-validated cost and outcome measures three groups are compared: the One-Stage group (n = 32) received 12 months of inpatient treatment; the Step-Down group (n = 29) received 6 months of inpatient treatment followed by 12 months of outpatient therapy; and the control group of 47 people used routinely available services. Both specialist programmes were more effective than routine psychiatric services but more costly. Using an extended dominance approach the incremental cost-effectiveness ratio showed that achieving one extra person with clinically relevant outcomes required an investment in the Step-Down programme of around £3400 over 18 months. Small sample sizes and non-random allocation to programmes are limitations of this study but the costs and effectiveness findings consistently point to advantages for the shorter residential programme followed by community-based psychotherapeutic support.