Most elderly persons in nursing homes and residential care have mental disorders; up to 75% have dementia. Depression and behavioural problems are common. There are big differences between institutions in the proportion of residents prescribed psychotropic medication. A review of the literature suggests that antipsychotics and benzodiazepines are modestly effective in diminishing agitation in some dementing patients. Antidepressants may be underutilised, but clear guidelines about which depressed individuals should receive them are lacking. Attention should be given to ways of improving the environment within these homes, in order to relieve depression and anxiety, and to increase life satisfaction and self-esteem, before commencing psychotropic medication to deal with mental disturbances. Shortage of trained staff and inappropriate design of nursing homes are factors associated with behavioural disturbance in some cases. Special dementia care units are a desirable option for a minority of residents. Involvement of pharmacists and medical directors in monitoring effects, adverse side effects, possible interactions and appropriateness of medications in nursing homes is recommended.