Numerous studies in the past three decades have characterised 'psychotic major depression', a subtype of major depression which is accompanied by delusions or other psychotic features. Evidence from phenomenological and neurobiological investigations indicates that this is a unique disorder with clinical and biological characteristics that are distinct from those of nonpsychotic depression and from other psychotic disorders. Treatment studies have provided evidence of small placebo effects and good responses to electroconvulsive therapy or combination treatment with an antidepressant plus an antipsychotic agent. However, until recently, there were only a few small, prospective, double-blind, controlled trials investigating the efficacy of antidepressant-antipsychotic combination pharmacotherapy, yet this constitutes the currently accepted and most universally applied 'standard of care' for psychotic depression. Treatment guidelines have been based largely on uncontrolled investigations of electroconvulsive therapy and studies using tricyclic antidepressants and first-generation antipsychotic drugs, which are not frequently chosen as first-line agents today because of concerns regarding tolerability and risks. However, recent open-label studies and large controlled trials of newer antidepressants and antipsychotics have yielded very divergent results thus far, so that the best treatment approach remains elusive. This review discusses the phenomenology and treatment of psychotic depression with a focus on the benefits and risks of various treatment approaches. Problems with this literature are highlighted, and strategies for future research are suggested.