The validity and cost-effectiveness of three methods for detecting medication errors were examined. A stratified random sample of 36 hospitals and skilled-nursing facilities in Colorado and Georgia was selected. Medication administration errors were detected by registered nurses (R.N.s), licensed practical nurses (L.P.N.s), and pharmacy technicians from these facilities using three methods: incident report review, chart review, and direct observation. Each dose evaluated was compared with the prescriber's order. Deviations were considered errors. Efficiency was measured by the time spent evaluating each dose. A pharmacist performed an independent determination of errors to assess the accuracy of each data collector. Clinical significance was judged by a panel of physicians. Observers detected 300 of 457 pharmacist-confirmed errors made on 2556 doses (11.7% error rate) compared with 17 errors detected by chart reviewers (0.7% error rate), and 1 error detected by incident report review (0.04% error rate). All errors detected involved the same 2556 doses. All chart reviewers and 7 of 10 observers achieved at least good comparability with the pharmacist's results. The mean cost of error detection per dose was $4.82 for direct observation and $0.63 for chart review. The technician was the least expensive observer at $2.87 per dose evaluated. R.N.s were the least expensive chart reviewers at $0.50 per dose. Of 457 errors, 35 (8%) were deemed potentially clinically significant; 71% of these were detected by direct observation. Direct observation was more efficient and accurate than reviewing charts and incident reports in detecting medication errors. Pharmacy technicians were more efficient and accurate than R.N.s and L.P.N.s in collecting data about medication errors.