Aim: To assess and compare the average annual the cost of illness of outpatients with bipolar disorder and schizophrenia. Methods: Cost of illness in 75 out-patients with bipolar disorder and 53 out-patients with schizophrenia was assessed over a 9-month period by using bottom-up approach. The cost of 9 months was annualized by dividing the 9 months cost by 3 and then multiplying the obtained figure with 4. Results: Total average annual costs of care of bipolar disorder was Indian rupees 32,759 (US $ 655.18) and that of schizophrenia was Indian rupees 48,059 (US $ 961.18) and there was no significant difference between the two groups. In both the groups, indirect costs (bipolar disorder-64.0%; Schizophrenia77.6%) were higher than direct costs (bipolar disorder-36%; Schizophrenia-22.4%). Cost of medications was high. Patient and their families bore the main brunt of financial burden (95.4-96% of the total cost). In Bipolar disorder total treatment costs were significantly higher in those who had lower level of functioning. In bipolar disorder group number of visits to the hospital correlated with total cost, indirect cost and provider's cost, whereas in schizophrenia group total number of visits correlated with provider's cost only. Only a small proportion (13.7%) of the total cost of bipolar disorder was predicted by presence or absence of alcohol dependence and number of visits. In the schizophrenia group, only positive symptom score as per the rating on PANSS appeared as a significant predictor of total cost, explaining 15.6% of the total cost. Conclusion: Costs for outpatients with bipolar disorder are similar to the cost of outpatients with schizophrenia. Costs are higher in patients of bipolar disorder with lower level of functioning. Findings of the study suggests that reducing the number of visits to the hospital by providing care at the doorsteps, focusing on reduction of substance use and improving the level of functioning of the patients can reduce the cost of care of bipolar disorder. (C) 2014 Elsevier B.V. All rights reserved.