Prescription and over-the-counter medications are an important and widely used part of healthcare in Canada. Such drugs represent an increasing proportion of total healthcare expenditures. The objectives of the paper are to examine pharmaceutical expenditures and utilisation in Canada, review the major cost control strategies for pharmaceuticals, and discuss the future issues and challenges for pharmaceutical policy in Canada. Compared with other Organisation for Economic Cooperation and Development (OECD) countries, Canada (until recently) has not been successful in controlling the rate of increase of healthcare expenditures and, more specifically, pharmaceutical costs. The key variables associated with high rates of increase in drug costs relate to increased per capita use of drugs, use of more expensive drugs, and rising prices of existing drugs. If policies are going to address the fundamental societal issues behind both the price and utilisation elements of pharmaceuticals, policy makers and third-party payers in Canada will probably have to focus, primarily, on manufacturers and major healthcare providers and, secondarily, on consumers. They will need to develop an internally valid package of consistent policies.