Electroencephalogram (EEG) effect parameters may be useful in pharmacokinetic-pharmacodynamic modelling studies of drug effects on the central nervous system (CNS). Effect parameters derived from a quantitative analysis of the EEG appear to be perfectly suited to characterise the relationships between pharmacokinetics and pharmacodynamics of benzodiazepines and intravenous anaesthetics. EEG parameters represent many of the characteristics of ideal pharmacodynamic measures, being continuous, objective, sensitive and reproducible. These features provide the opportunity to derive concentration-effect relationships for these drugs in individuals, which yield important quantitative information on the potency and intrinsic efficacy of these drugs. The EEG techniques presented can be used to study the influences of factors such as age, disease, chronic drug use and drug interactions on the concentration-effect relationships of psychotropic drugs. An important issue is the choice of the EEG parameter to characterise the CNS effects of the compounds. More attention must be paid to evaluating the relevance of EEG parameters to the pharmacological effects of the drugs. Knowledge of the relationship between EEG effect parameters and clinical effects of drugs under different physiological and pathophysiological conditions is crucial to determining the value of EEG parameters in drug effect monitoring. Pharmacodynamic parameters derived from the concentration-EEG effect relationship may be correlated to pharmacodynamic parameters obtained from other in vitro and in vivo effect measurements. These comparisons revealed that changes in the amplitudes in the beta frequency band of EEG signals is a relevant measure of pharmacological effect intensity of benzodiazepines, which reflects their affinity and intrinsic efficacy at the central gamma-aminobutyric acid (GABA) benzodiazepine receptor complex. The exact EEG correlates of the anxiolytic, anticonvulsant, sedative and hypnotic actions of benzodiazepines have not yet clearly been elucidated. For intravenous anaesthetics, close correlations between the potency determined with EEG measurements and clinical measures of anaesthetic depth have been established, suggesting that, in principle, EEG parameters can adequately reflect depth of anaesthesia. However, more study is required to further substantiate these findings.