A major issue in proof of concept studies and early clinical trials of novel therapeutic agents is that the active drugs can often have a relatively small additional effect compared with placebo. This is especially the case in psychiatry when we usually have no direct method of measuring the pathology underlying the disorder being studied but, rather, have to rely on the subjective assessment of psychiatric symptoms. The use of the electroencephalogram (EEG) offers two potential major means of addressing this problem. First it is able to provide direct data relating to neural activity that may be abnormal in certain disorders. As such there are opportunities for utilizing the EEG in a variety of ways as an objective outcome measure. Second there is growing evidence that in certain circumstances the EEG can be used to predict which patients are likely to respond to treatment, thus potentially increasing the power of studies by decreasing non-response rates and increasing mean changes in outcome measure. Both of these uses of the EEG are illustrated in reference to the study of mood disorders and in particular depression and its treatment with antidepressants.