Neurocognitive deficits are an enduring characteristic of schizophrenia, and remain prominent in patients whose positive symptoms have decreased after treatment with typical neuroleptics. Recent research has reported that olanzapine improves cognitive functioning in relapsing schizophrenia followed in an outpatient setting. Whether olanzapine will have an effect on improving cognitive function in chronic schizophrenics who have been hospitalized for long periods of time, and have shown a poor response to other conventional and atypical neuroleptics, has not been established. This study investigated cognitive function in chronic medication refractory schizophrenics who were treated with olanzapine or haloperidol in a double-blind study for 8 wk, and followed in an open olanzapine study for several additional months. Patients were evaluated with psychopathology rating scales and a battery of neuropsychological tests at baseline, end of double-blind and end of open-label phases of the study. At the end of the double-blind phase there were no significant differences between olanzapine and haloperidol, except for a trend for improvement on the Wisconsin Card Sort Test on olanzapine, which was significant at traditional but not corrected significance levels. After an additional 3 months of treatment with olanzapine doses of 20–40 mg/d, our statistical analysis showed significant improvement on overall neuropsychological test performance and specific cognitive tasks assessing verbal memory. However, these open-label results are difficult to interpret definitively because of the lack of a comparison drug group and the olanzapine dose escalation over time. Neurocognitive changes were not correlated with changes in psychopathology as assessed by PANSS or SANS scores.