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As part of a series of investigations into the occurrence and outcome of mental disorders in the U.S. Navy, this study was designed to determine first hospitalization incidence rates for neurotic disorders in an initially healthy young adult population and to determine the duration of acute illness, severity, and posthospital outcomes in terms of military performance and premature personnel losses. Data on first hospitalizations for neurotic disorders were extracted from automated medical record data files for all active duty Navy personnel admitted between 1980 and 1988. Incidence rates were calculated for major demographic subgroups, and career history records provided a 4-year follow-up of service-related outcomes. Overall incidence ranged from a low of 3 per 100,000 for obsessive-compulsive disorders to a high of 58 per 100,000 for other neurotic disorders/neurotic disorders not otherwise specified (NOS). The phobia and depressive groups had the poorest prognoses for continued service, and the NOS and anxiety groups had the best prognoses