DSM-III tightened the criteria for diagnosis of schizophrenia by excluding patients who exhibit a full affective syndrome before the onset of psychotic symptoms; such patients are to receive a diagosis of affective disorder. The impact of this change on psychiatric diagnostic practices in Veterans Administration facilities before and after publication of DSM-III was assessed. Diagnoses of schizophrenia increased about half as much as would be expected based on the overall increase in psychiatric diagnoses, while diagnoses of affective disorders rose about two and a half times as much as would be expected. Patients whose diagnoses were changed from schizophrenic to afftctive disorders after publication of DSM-III bad significantly fewer hospitalizations in both time periods than patients who retained diagnoses of schizophernia. However, greater diagnostic inconsistency was found after implementation of DSM-III.