Adverse drug events remain a leading cause of morbidity and mortality around the world. Many adverse events are not detected during clinical trials before a drug receives approval for use in the clinic. Fortunately, as part of postmarketing surveillance, regulatory agencies and other institutions maintain large collections of adverse event reports, and these databases present an opportunity to study drug effects from patient population data. However, confounding factors such as concomitant medications, patient demographics, patient medical histories, and reasons for prescribing a drug often are uncharacterized in spontaneous reporting systems, and these omissions can limit the use of quantitative signal detection methods used in the analysis of such data. Here, we present an adaptive data-driven approach for correcting these factors in cases for which the covariates are unknown or unmeasured and combine this approach with existing methods to improve analyses of drug effects using three test data sets. We also present a comprehensive database of drug effects (OFFSIDES) and a database of drug-drug interaction side effects (TWOSIDES). To demonstrate the biological use of these new resources, we used them to identify drug targets, predict drug indications, and discover drug class interactions. We then corroborated 47 (P < 0.0001) of the drug class interactions using an independent analysis of electronic medical records. Our analysis suggests that combined treatment with selective serotonin reuptake inhibitors and thiazides is associated with significantly increased incidence of prolonged QT intervals. We conclude that confounding effects from covariates in observational clinical data can be controlled in data analyses and thus improve the detection and prediction of adverse drug effects and interactions.