Substance-induced psychosis is an extreme mental disorder that is relevant to up to 25% of individuals presenting with first episode of psychosis. One out of three of those continuing the drug abuse will have a recurrent psychosis. In order to treat the psychosis and prevent recurrent drug abuse which might lead to another psychosis, the therapist should understand all parts of the process leading up to psychosis, including the root causes for the drug abuse and the addiction, the effect of the drugs on the body and the psychosis itself. This article reviews substance-induced psychosis and the process leading to the abuse, the addiction and the psychosis from both Western and traditional Chinese medicine and includes three case studies of patients with acute psychosis who were treated successfully.