The prevalence of psychiatric disorders was determined in a sample of 196 VA nursing home residents who were interviewed using the modified Schedule for Affective Disorders and Schizophrenia (mSADS). Of the 160 subjects for whom data were available, 86% had a diagnosis of at least one psychiatric disorder. The prevalence of clinically significant cognitive impairment was 60.6% and of major depression 13.8%. Of 110 residents for whom alcohol histories were obtained, 32 (29%) had a lifetime diagnosis of alcohol abuse. The degree of impairment in activities of daily living improved significantly from the time of admission to the time of the evaluation (average 1.4 years) among those who were recently abusing alcohol compared to those who formerly abused alcohol and those who never abused alcohol. The effect is clinically as well as statistically significant and has the potential benefit of reducing caregiver burden and health care costs for the elderly.