OBJECTIVES: To explore associations between psychiatric comorbidity and rehospitalization risk, length of hospitalization, and costs. DESIGN: Cross‐sectional study of 1‐year hospital administrative data. SETTING: Claims‐based study of older adults hospitalized in the United States. PARTICIPANTS: Twenty‐one thousand four hundred twenty‐nine patients from a 5% national random sample of U.S. Medicare beneficiaries aged 65 and older, with at least one acute care hospitalization in 1999 with a Diagnostic‐Related Group of congestive heart failure. MEASUREMENTS: The number of hospitalizations, mean length of hospital stay, and total hospitalization costs in calendar year 1999. RESULTS: Overall, 15.8% of patients hospitalized for heart failure (HF) had a coded psychiatric comorbidity; the most commonly coded comorbid psychiatric disorder was depression (8.5% of the sample). Most forms of psychiatric comorbidity were associated with greater inpatient utilization, including risk of additional hospitalizations, days of stay, and hospitalization charges. Additional hospitalization costs associated with psychiatric comorbidity ranged up to $7,763, and additional days length of stay ranged up to 1.4 days. CONCLUSION: Psychiatric comorbidity appears in a significant minority of patients hospitalized for HF and may affect their clinical and economic outcomes. The associations between psychiatric comorbidity and use of inpatient care are likely to be an underestimate, because psychiatric illness is known to be underdetected in older adults and in hospitalized medical patients.