The desire to acquire or increase financial compensation for a psychiatric disability is widely believed to introduce a response bias into patients' reports of their symptoms and their work performance. The hypothesized effects of compensation-seeking in inhibiting improvement from treatment are examined. Data from outpatient (N = 455) and inpatient (N = 553) programs for the treatment of posttraumatic stress disorder and associated disorders in the Department of Veterans Affairs were used to compare outcomes for veterans who were and were not seeking compensation. Outcome was measured as pre/post improvement in symptoms and work performance over the course of 1 year after the initiation of treatment. No compensation-seeking effect was observed among outpatients, but a significant effect was found for some inpatients. The effect for inpatients was manifested essentially by patients in a program type which was designed to have an extremely long length of stay, thus triggering a virtually automatic increase in payments. Like outpatients, inpatients in programs with a moderate length of stay did not manifest a compensation-seeking effect on improvement. Although not permitting a definitive explanation, the preponderance of the evidence favors the overstatement of symptoms rather than either the severity or the chronicity of the disorder as the most likely explanation for the compensation-seeking effect that was observed. For patients treated in standard outpatient and short-stay inpatient programs, compensation does not seem to affect clinical outcomes adversely.