The authors, who are medical directors of three state mental health agencies and members of the Medical Directors' Council of the National Association of State Mental Health Program Directors (NASMHPD), describe the impact on public mental health policy of the Clinical Antipsychotic Trials of Intervention Effectiveness (CATIE). Before publication of the CATIE results, the preponderance of information indicated substantial and broad-ranging advantages of second-generation antipsychotics over first-generation agents. State mental health authorities focused on improving access to and increasing utilization of the newer agents. In many states, expenditures for these agents accounted for 10% of the total pharmacy budget of the Medicaid program. After CATIE, state policy makers have had to take a more critical look at the data and formulate more nuanced approaches. The authors summarize policy recommendations of the NASMHPD Medical Directors' Council, which reviewed efficacy studies of antipsychotics and formulated a position statement. The recommendations cover three broad areas of policy. First, neither complete open access for all patients at all times nor a uniform fail-first trial of a first-generation antipsychotic is an optimal approach. A more nuanced middle ground is necessary. Second, excessive emphasis on the cost of second-generation antipsychotics has led to a lack of focus on optimizing use of all antipsychotic medication in usual practice. More research and management attention must be focused on improving how these medications are prescribed for individual patients. Third, more resources should be invested in clinical trials that more clearly and accurately reflect current practice.