Using a systematic approach based upon findings obtained from the patient's history, physical examination, routine laboratory studies, and chest roentgenograms, the clinician will establish the presence and location of pleural effusion in the majority of cases. The selective use of tests based upon the clinician's initial diagnostic impressions will allow accurate separation of transudative from exudative effusions; exudative effusions will be diagnosed in over 85 per cent of patients. There remain many unanswered questions regarding the diagnosis of pleural effusion. Prospective studies are needed to establish diagnostic algorithms that minimize under- and overutilization of tests. The introduction of Medicare Prospective Reimbursement under Diagnosis-Related Groups (DRGs) on October 1, 1983, may provide the appropriate incentives to hospitals and clinicians to carry out these important studies.