Treatment records of 94 patients treated in an experimental home-based psychiatric service and 78 control patients in standard care were collected over one year. There was a substantial reduction in in-patient care in the experimental group, both in terms of proportion admitted and duration of admissions, despite similar out-patient and general practice care. The total treatment costs were significantly larger (>50%) for standard care when controlled for by diagnostic grouping. Costs were further examined by including all specialist psychiatric care, and by excluding patients with primary diagnoses of brain damage or alcoholism. Sensitivity analysis explored the effects of increasing the cost of home visits. The relative cost effectiveness of the experimental service persisted. Clinical and social outcome was similar in control and experimental groups.