BACKGROUND: Recent research indicates that cognitive-behaviour therapy (CBT) can be effective in ameliorating persistent positive symptoms in chronic psychotic patients. The effectiveness of CBT in acute and recent-onset psychosis has been little explored, although a recent pilot study indicated that CBT could significantly improve recovery in acutely psychotic inpatients. METHOD: Short-term individual CBT was compared to supportive counselling/psychoeducation (SC) as an adjunct to standard inpatient hospital care and medication in 21 inpatients experiencing a recent-onset acute schizophrenic episode. RESULTS: Both groups showed significant reductions in Brief Psychiatric Rating Scale (BPRS) scores following treatment, although there were no group differences. Time to discharge did not differ significantly between the groups, although there was a greater variance for the SC patients. Two-year follow-up showed no significant differences between the groups, although the number of patients who relapsed, the number of relapses and the time to recurrence of psychotic symptoms was lower in the CBT group than the SC group. Interestingly, the time to readmission was shorter in the CBT group. CONCLUSIONS: CBT and SC are acceptable treatments for recent-onset acutely psychotic inpatients. A larger randomised controlled trial over multiple hospital sites is warranted.