1
SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]

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Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))

PSYCHEMEDICS CORPORATION
(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement)

PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

1) Title of each class of securities to which transaction applies:

2) Aggregate number of securities to which transaction applies:

3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):

4) Proposed maximum aggregate value of transaction:

5) Total fee paid:

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

1) Amount Previously Paid:

2) Form, Schedule or Registration Statement No.:

3) Filing Party:

4) Date Filed:

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PSYCHEMEDICS
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CORPORATION BOSTON - LOS ANGELES - CHICAGO
DALLAS - ATLANTA - PHILADELPHIA

April 2, 2001

Dear Stockholders:

We cordially invite you to attend the Annual Meeting of Stockholders, which
will be held at The Charles Hotel in Harvard Square, 1 Bennett Street,
Cambridge, Massachusetts, on Thursday, May 10, 2001, at 2:00 P.M.

The notice of the meeting and the proxy statement on the following pages
cover the formal business of the meeting. The meeting will consider the election
of directors and ratification of the appointment of auditors for 2001. I will
report on current operations and discuss our plans for growth. We will also have
plenty of time for your questions and comments.

I believe that the Annual Meeting provides an excellent opportunity for
stockholders to become better acquainted with Psychemedics and its directors and
officers. I hope that you will be able to attend.

Sincerely,

/s/ Raymond C. Kubacki, Jr.

Raymond C. Kubacki, Jr.
President and Chief Executive Officer

1280 Massachusetts Avenue, Suite 200, Cambridge, Massachusetts 02138
TEL: (617) 868-7455, (800) 628-8073, FAX: (617) 864-1639

PSYCHEMEDICS CORPORATION

1280 Massachusetts Avenue
Cambridge, Massachusetts 02138

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

April 2, 2001

The Annual Meeting of Stockholders will be held on May 10, 2001 at 2:00
p.m. at The Charles Hotel in Harvard Square, 1 Bennett Street, Cambridge,
Massachusetts 02138, for the following purposes:

1. To elect directors of the Company for the ensuing year and until their
respective successors are chosen and qualified;

2. To ratify the Company's selection of Arthur Andersen LLP as the
Company's independent auditors for the year ending December 31, 2001;
and

3. To consider and act upon matters incidental to the foregoing and to
transact such other business as may properly come before the meeting.

The Board of Directors has fixed the close of business on March 15, 2001 as
the record date for the determination of stockholders entitled to receive notice
of, and to vote at, the Annual Meeting of Stockholders.

By order of the Board of Directors,

Edward S. Brewer, Jr.,
Secretary

The Company's Annual Report for 2000 containing a copy of the Company's
Form 10-K (excluding exhibits) for the year ended December 31, 2000 is enclosed
herewith.

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PLEASE FILL IN, DATE, SIGN AND MAIL PROMPTLY THE ACCOMPANYING PROXY IN THE
RETURN ENVELOPE FURNISHED FOR THAT PURPOSE, WHETHER OR NOT YOU PLAN TO ATTEND
THE MEETING.
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PSYCHEMEDICS CORPORATION

1280 Massachusetts Avenue
Cambridge, Massachusetts 02138

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 10, 2001

This statement is furnished to the stockholders of PSYCHEMEDICS CORPORATION
(hereinafter, the "Company") in connection with management's solicitation of
proxies to be used at the Annual Meeting of Stockholders on May 10, 2001 and at
any adjournment of that meeting. The approximate date on which this proxy
statement and accompanying proxy are being sent to stockholders of the Company
is April 2, 2001. Each proxy delivered pursuant to this solicitation is
revocable at the option of the person executing the same by written notice
delivered to the Secretary of the Company at any time before the proxy is voted.
A stockholder who attends the Annual Meeting in person may revoke his or her
proxy at that time and vote his or her shares if such stockholder so desires.
The presence in person or by proxy of stockholders entitled to cast a majority
of the outstanding shares, or 10,576,689 shares, shall constitute a quorum. With
respect to the election of Directors, the Company will treat votes withheld as
shares that are present for purposes of determining a quorum. A plurality is
required to elect Directors, so the six persons receiving the greatest number of
votes will be elected. Withheld votes will not affect the outcome of the
election. With respect to the approval of auditors, the Company will treat
abstentions as shares that are present and entitled to vote for purposes of
determining a quorum. Since a majority of the shares represented at the meeting
and entitled to vote is required for approval, abstentions will have the effect
of a vote against approval of this proposal. If a broker indicates on a proxy
that it does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will be considered as present for quorum
purposes but not as shares entitled to vote with respect to that matter.
Accordingly, broker non-votes will have no effect on such a matter.

All shares represented by a properly executed proxy will be voted unless it
is revoked and, if a choice is specified, will be voted in accordance with such
specification. If no choice is specified, the proxies will be voted FOR the
election of the six nominees named under "Election of Directors", unless
authority to do so is withheld with respect to one or more of the nominees, and
FOR the ratification of the Company's selection of Arthur Andersen LLP as
auditors for the year ending December 31, 2001. In addition, the proxy will be
voted in the discretion of the proxy holders with respect to such other business
as may properly come before the meeting. The officers and directors of the
Company as a group own beneficially (excluding options to acquire stock)
approximately 20% of the outstanding shares of Common Stock of the Company (see
"Principal Stockholders and Stockholdings of Management"). The Company expects
that its officers and directors will vote the shares owned by them FOR the
election of such six nominees and FOR the ratification of the Company's
selection of Arthur Andersen LLP as auditors.

As of March 15, 2001, the Company had outstanding 21,153,376 shares of
Common Stock. Each share of the outstanding Common Stock is entitled to one
vote. Only holders of Common Stock of record on the books of the Company at the
close of business on March 15, 2001 will be entitled to receive notice of, and
to vote at, the Annual Meeting.

ELECTION OF DIRECTORS

At the Annual Meeting, directors are to be elected to hold office for the
ensuing year and until their respective successors are chosen and qualified. The
Board of Directors has fixed the size of the Board at six and has nominated six
persons, all of whom are now directors of the Company, to serve until the next
Annual Meeting of Stockholders and until their successors are elected and
qualified. If the enclosed proxy is duly executed and received in time for the
Meeting, and unless authority to do so is withheld, it will be voted to elect as
directors the following nominees: Raymond C. Kubacki, Jr., Werner A.
Baumgartner, Ph.D., A. Clinton Allen, Donald F. Flynn, Walter S. Tomenson, Jr.
and Fred J. Weinert. (For a description of the business experience of such
nominees, see "Business Experience of Nominees and Executive Officers" below.)
In the event that any of the nominees become unavailable, then the proxy holders
shall have the right: (i) to vote for such substitute, if any, as the present
Board of Directors may designate; or (ii) to leave a vacancy on the Board.

The Company does not have any nominating or compensation committees of the
Board of Directors. The Audit Committee, whose members are Messrs. Flynn,
Tomenson and Weinert, held one meeting during 2000. Each of the members of the
Audit Committee is independent within the meaning of the listing standards for
the American Stock Exchange. The Stock Option Committee, whose members are
Messrs. Flynn, Tomenson and Weinert, administers the Company's stock option
plans, including the determination of persons who are to be granted options
under such plans, the number of shares subject to each option, and the term of
each option. The Stock Option Committee held one meeting in 2000.

During the year ended December 31, 2000, there were two meetings of the
Board of Directors. All of the directors attended both meetings, except for Mr.
Flynn and Dr. Baumgartner, who each attended only one meeting. The directors
also acted by unanimous written consent on ten occasions during 2000. The
directors regularly consult with management and are kept informed of business
developments and financial results as they occur.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based solely on its review of copies of reports filed pursuant to Section
16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or written representations from persons required to file such reports
("Reporting Persons"), the Company believes that except as described below, all
such filings required to be made by such Reporting Persons were timely made in
accordance with the requirements of the Exchange Act. Dr. Baumgartner filed Form
4's to report the sales of shares in 13 transactions which took place in May and
June, 2000 after the dates specified therefor.

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BUSINESS EXPERIENCE OF NOMINEES AND
EXECUTIVE OFFICERS

Following is a list of names, ages and positions with the Company of all
nominees for election as directors and all executive officers of the Company.

Name Age Position
---- --- --------

Raymond C. Kubacki, Jr. 56 Chief Executive Officer,
President, Director and
Nominee

Werner A. Baumgartner, Ph.D. 65 Chairman of the Board,
Director and Nominee

A. Clinton Allen 57 Vice Chairman of the
Board, Director and
Nominee

Donald F. Flynn 61 Director and Nominee, Member of
Audit and Stock Option Committees

Walter S. Tomenson, Jr. 54 Director and Nominee, Member of
Audit and Stock Option Committees

Fred J. Weinert 53 Director and Nominee, Member of
Audit and Stock Option Committees

William R. Thistle 51 Vice President, General Counsel

Peter C. Monson 45 Chief Financial Officer, Vice
President and Treasurer

Michael I. Schaffer, Ph.D. 56 Vice President,
Laboratory Operations

William Dausey 50 Vice President, Sales

All directors hold office until the next Annual Meeting of Stockholders or
until their successors are elected. Officers serve at the discretion of the
Board of Directors.

Mr. Kubacki has been the Company's President and Chief Executive Officer
and has served as a director of the Company since 1991. Prior to joining the
Company, he served as Vice President-National Accounts and Director of Sales and
Marketing for Reliance COMM/TEC Corporation, a subsidiary of Reliance Electric
Co.

Dr. Baumgartner, a founder of the Company, has served as Chairman of the
Board and a director of the Company since its organization in September, 1986.
Dr. Baumgartner received his Ph.D. in physical chemistry in 1963 from the
University of New South Wales, Sydney, Australia, and has been engaged in
physical and biophysical chemistry research since 1960 holding research and
teaching positions at University of New South Wales; Long Beach State
University; the Jet Propulsion Laboratory at the California Institute of
Technology; University of California, Los Angeles; and University of Southern
California. Dr. Baumgartner has been the director of the Radioimmunoassay and In
Vitro Laboratory of

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the Nuclear Medicine Service, Veterans Administration Hospital, Wadsworth, Los
Angeles, California since 1976, serving in such capacity on a part-time basis
since 1987.

Mr. Allen has served as Vice Chairman and a director of the Company since
1989. He is also Chairman and Chief Executive Officer of A.C. Allen & Company,
Inc., an investment banking consulting firm located in Cambridge, Massachusetts.
He is a director of Steinway Musical Instruments, Inc., Diversified Corporate
Resources, Inc., Swiss Army Brands, Inc., and The DeWolfe Companies, Inc., where
he serves as Vice Chairman.

Mr. Flynn has been the sole stockholder of Flynn Enterprises, Inc. a
venture capital hedging and consulting firm based in Chicago, Illinois since its
inception in 1988. He has also served as Chairman of the Board of LKQ
Corporation, a company engaged in the automobile recycling business, since 1999,
and served as its sole director from 1998 until 1999. He was the Vice Chairman
of Blue Chip Casino, Inc., an owner and operator of a river boat gaming vessel
in Michigan City, Indiana, from 1997 until 1999, when it was sold to Boyd Gaming
Corporation. Mr. Flynn also was Chairman of the Board from 1992 until 1996, and
Chief Executive Officer from 1992 until 1995, of Discovery Zone, Inc., an
operator of indoor entertainment and fitness facilities for children. From 1972
to 1990, Mr. Flynn served in various positions with Waste Management, Inc.,
including Senior Vice President and Chief Financial Officer. Mr. Flynn serves as
a director of Extended Stay America, Inc., an owner and operator of
extended-stay lodging facilities. Mr. Flynn has been a director of the Company
since 1989.

Mr. Tomenson has been Managing Director and Chairman of Client Development
of Marsh, Inc. since 1998. From 1993 to 1998, he was Chairman of FINPRO, the
financial services division of Marsh, Inc. In addition, he is a member of the
Board of Directors of Marsh, Inc. Mr. Tomenson is a Director of Ronald McDonald
House and a Trustee of the Children's Oncology Society of New York, Inc. He is a
Director of the Trinity College School Fund, Inc. He also serves on the
Executive Council of the Inner-City Scholarship Fund.

Mr. Weinert is the majority shareholder and serves as Chief Executive
Officer of San Telmo, Inc., Barrington Services Group, and H20 Plus, SRL. From
1989 to 1995 he was President of H20 Plus L.P., MW Partners, and Century
Entertainment Ltd. Previous to that he had a 16 year career with Waste
Management, Inc., during which he served as a Vice President and also as
President of Waste Management International, Inc. from 1983 to 1989. For the
last 16 years he has served on the Business Advisory Council for the University
of Dayton. He is a trustee for the Center of Excellence in Education based in
Washington, D.C. Mr. Weinert has been a director of the Company since 1991.

Mr. Thistle has been Vice President and General Counsel of the Company
since 1995. From 1993 to 1995 he served as Associate General Counsel for MGM
Grand in Las Vegas. From 1989 to 1993, Mr. Thistle was Associate General Counsel
for Harrah's Casino Resorts. Mr. Thistle is on the Legal Advisory Board of the
Institute for a Drug Free Workplace and is a board member of the Drug and
Alcohol Testing Industry Association.

Mr. Monson has been the Company's Chief Financial Officer since March 2000.
He has served as a Vice President, Treasurer of the Company since 1998. From
November 1996 until joining the Company, Mr. Monson was a financial consultant
to several different companies, most recently with GTE Internetworking. From
1994 to 1996, Mr. Monson was Chief Financial Officer of Bet Systems, Inc. From
1991 to 1994, Mr. Monson was the Corporate Controller and Treasurer of Gamma
International, Ltd., a publicly traded gaming company.

Dr. Schaffer joined the Company in 1999 as Vice President of Laboratory
Operations. Prior to joining the Company, he served as Director of Toxicology,
Technical Manager and Responsible Person for the Leesburg, Florida laboratory of
SmithKline Beecham Clinical Laboratories, from 1990 to 1999. Dr. Schaffer has
been an inspector for the Substance Abuse and Mental Health Services
Administration's National Laboratory Certification Program since 1989. Dr.
Schaffer was also a member of the Board of Directors of the American Board of
Forensic Toxicologists from 1990 to 1999.

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Mr. Dausey joined the Company in April, 2000 as Vice President of Sales.
Prior to joining the Company, Mr. Dausey was Vice President, Commercial and
Industrial Sales for NorthWestern Corporation, since 1996. Previous positions
include Vice President of Sales for PTC Aerospace and various positions at BF
Goodrich Company. Mr. Dausey holds a BS from Indiana University and a MBA from
Harvard University.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On January 6, 1997 and on November 12, 1997, the Company made term loans to
Mr. Kubacki in connection with the exercise of stock options granted to him in
1992. The original principal amounts of the loans were $209,892, and $211,232
and each was repayable in one year with interest at the federal short-term rate
in effect on such date plus one quarter percentage point. The principal amount
of the January 6, 1997 loan was renewed for additional one-year terms in each of
the years 1998 - 2001. The November 12, 1997 loan was renewed for additional
one-year terms in 1998, 1999 and 2000. Mr. Kubacki made principal and interest
payments in the aggregate amount of approximately $27,790 under the two loans in
2000. As of March 15, 2001, the aggregate amount of principal and accrued
interest under the loans was $396,700. Each loan is secured by the shares of
common stock acquired upon such exercise.

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REPORT OF THE AUDIT COMMITTEE

The following Report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent the Company specifically incorporates this
Report by reference therein.

On May 11, 2000, the Board of Directors adopted a charter for the Audit
Committee. The complete text of the new charter, which reflects standards set
forth in new SEC regulations and American Stock Exchange rules, is attached
hereto as Exhibit A to this proxy statement. As set forth in more detail in the
charter, the Audit Committee's primary responsibilities fall into three broad
categories:

first, the Committee is charged with monitoring the preparation of
quarterly and annual financial reports by the Company's management,
including discussions with management and the Company's auditors about
draft annual financial statements and key accounting and reporting matters;

second, the Committee is responsible for matters concerning the
relationship between the Company and its auditors, including recommending
their appointment or removal; reviewing the scope of their audit services
and related fees, as well as any other services being provided to the
Company; and determining whether the auditors are independent (based in
part on the annual letter provided to the Company pursuant to Independence
Standards Board Standard No. 1); and

third, the Committee oversees management's implementation of effective
systems of internal controls, including review of policies relating to
legal and regulatory compliance, ethics and conflicts of interests.

The Committee has implemented procedures to ensure that during the course
of each fiscal year it devotes the attention that it deems necessary or
appropriate to each of the matters assigned to it under the Committee's charter.
In overseeing the preparation of the Company's annual financial statements for
the year ending December 31, 2000, the Committee met with both management and
the Company's auditors to review and discuss such financial statements prior to
their issuance and to discuss significant accounting issues. Management advised
the Committee that such financial statements were prepared in accordance with
generally accepted accounting principles, and the Committee discussed the
statements with both management and the auditors. The Committee's review
included discussion with the auditors of matters required to be discussed
pursuant to Statement on Auditing Standards No. 61 (Communication With Audit
Committees). With respect to the Company's auditors, the Committee, among other
things, discussed with Arthur Andersen LLP matters relating to its independence,
including the disclosures made to the Committee as required by the Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees).
On the basis of these reviews and discussions, the Committee recommended to the
Board of Directors that the Board approve the inclusion of the Company's audited
financial statements in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000, for filing with the Securities and Exchange
Commission.

Members of the Audit Committee:

Donald F. Flynn
Walter Tomenson
Fred J. Weinert

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EXECUTIVE COMPENSATION AND OTHER INFORMATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table shows, for the three year period ended December 31,
2000, the cash compensation paid by the Company as well as certain other
compensation paid or accrued for such year, to the Company's Chief Executive
Officer and the Company's four other most highly compensated executive officers
(collectively the "named executive officers").

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
-------------------------------------------------------------- ------------
NAME AND OTHER ANNUAL SECURITIES ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION UNDERLYING COMPEN-
POSITION YEAR $ $ $ OPTIONS(#) SATION($)
- -------- ---- ------- ----- ------------ ---------- ---------

Raymond C 2000 221,154 0 (1) 0 5,307(2)
Kubacki, Jr 1999 221,824 0 (1) 75,000 5,062(2)
President & CEO 1998 199,439 0 (1) 70,000 4,031(2)

A. Clinton Allen 2000 180,692 0 (1) 50,000 5,304(2)
Vice Chairman 1999 169,039 0 (1) 50,000 5,071(2)
1998 145,673 0 (1) 75,000 3,000(2)

William R. Thistle 2000 148,539 0 (1) 35,000 4,558(2)
Vice President 1999 139,212 8,500 (1) 30,000 4,176(2)
& General 1998 120,606 8,500 (1) 15,000 2,400(2)
Counsel

Michael I. Schaffer 2000 148,615 0 (1) 25,000 1,937(2)
Vice President 1999 94,092 0 (1) 45,000 0
Laboratory
Operations

Peter C. Monson 2000 113,939 0 (1) 25,000 3,558(2)
Chief Financial 1999 105,904 0 (1) 25,000 2,519(2)
Officer 1998 69,240 0 (1) 10,000 0

(1) Any perquisites or other personal benefits received from the Company by the
named executive were substantially less than the reporting thresholds
established by the Securities and Exchange Commission (the lesser of
$50,000 or 10% of the individual's cash compensation).

(2) Employer contribution under a 401(k) Retirement Plan.

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STOCK OPTION GRANT TABLE

The following table contains information concerning the grant of stock
options to the named executive officers of the Company during the Company's
fiscal year ended December 31, 2000:

OPTION GRANTS IN LAST FISCAL YEAR

POTENTIAL REALIZABLE VALUE
% OF TOTAL OF ASSUMED ANNUAL RATE
OPTIONS EXERCISE OF STOCK APPRECIATION
GRANTED TO OR BASE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------------------
NAME GRANTED(1) FISCAL YEAR ($/SH)(5) DATE 0% 5%($) 10%($)
---- ---------- ------------ --------- ----------- -- ----- ------

A. Clinton Allen 50,000(3) 19.1 4.94 5-11-10 0 155,337 393,654

William R. Thistle 35,000(2)(4) 13.4 4.94 5-11-10 0 108,736 275,558

Michael I. Schaffer 25,000(2) 9.6 4.94 5-11-00 0 77,667 196,825

Peter C. Monson 25,000(2) 9.6 4.94 5-11-00 0 77,667 196,825

(1) These options were granted pursuant to the Company's 2000 Stock Option
Plan.

(2) These options are all incentive stock options and vest with respect to 25%
of the shares covered thereby on May 11, 2001, and with respect to an
additional 25% on each of the three anniversary dates thereafter.

(3) Of these options, options with respect to 21,250 shares are incentive stock
options and vest with respect to 8,750 shares on May 11, 2003, and with
respect to 12,250 shares on May 11, 2004; options with respect to 28,750
shares are non-qualified stock options and vest with respect to 12,500
shares on May 11, 2001 and 2001, and with respect to 3,750 shares on May
11, 2003.

(4) Notwithstanding the foregoing vesting schedule, these options become
exercisable in full upon a "change of control" of the Company. See
"Employment Contracts and Change-in-Control Arrangements".

(5) Represents the market value on the date of grant.

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OPTION EXERCISES AND YEAR-END VALUES

The following table sets forth information with respect to the named
executives concerning each exercise of stock options during the fiscal year and
the number and value of unexercised options held as of December 31, 2000.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES

SHARES VALUE NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED REALIZED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
ON EXERCISE ($)(1) YEAR-END(#) FISCAL YEAR-END ($)(2)
----------- -------- ----------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------

Raymond C
Kubacki, Jr 0 0 567,252 91,250 975,816 39,712

A. Clinton Allen 0 0 213,300 125,000 325,444 38,249

William R. Thistle 0 0 75,500 65,000 5,325 22,650

Michael I. Schaffer 0 0 11,250 58,750 8,712 31,387

Peter C. Monson 0 0 11,250 48,750 4,062 17,437

(1) Value realized represents the difference between the closing price of the
Common Stock on the date of exercise and the exercise price, multiplied by
the number of shares acquired on exercise.

(2) Represents the fair market value of the Company's Common Stock on December
31, 2000 ($5.15 per share based on the closing price on the American Stock
Exchange) minus the exercise price per share, of the in-the-money options,
multiplied by the number of shares subject to each option.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

In connection with the grants by the Company to Mr. Kubacki and to Mr.
Thistle of options to acquire shares of the Company's Common Stock, the Company
agreed that notwithstanding the vesting schedule stated in the applicable option
agreement, such options would become exercisable in full upon a
change-in-control of the Company. The following events constitute a
change-in-control for purposes of the option agreements: (a) the aggregate
number of shares beneficially owned by the group of investors which purchased
securities of the Company on May 15, 1989 is less than the number held by any
other person or group, (b) the Company sells, leases or transfers all or
substantially all of its assets, or (c) the Company merges or consolidates with
another company and the existing stockholders of the Company end up owning less
than 50% of the combined company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During fiscal year 2000, Dr. Baumgartner, and Messrs. Kubacki and Allen,
each of whom was both a director and an executive officer of the Company during
the year ended December 31, 2000, participated in deliberations of the Board of
Directors during such year concerning executive officer compensation.

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BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION

The following Report of the Compensation Committee and the Stock Option
Committee and the performance graph included elsewhere in this proxy statement
do not constitute soliciting material and should not be deemed filed or
incorporated by reference into any other Company filing under the Securities Act
of 1933 or the Securities Exchange Act of 1934, except to the extent the Company
specifically incorporates this Report or the performance graph by reference
therein.

The Company's executive compensation program is designed to attract,
retain and reward executives who are responsible for leading the company in
achieving its business objectives. This report is submitted by the Board of
Directors and addresses the compensation policies for fiscal 2000 as they
affected Mr. Kubacki, in his capacity as Chief Executive Officer of the
Company, and the other executive officers of the Company.

COMPENSATION PHILOSOPHY

The Company's executive compensation philosophy is based on the belief
that competitive compensation is essential to attract, motivate and retain
highly qualified and industrious employees. The Company's policy is to
provide total compensation that is competitive for comparable work and
comparable corporate performance. The compensation program is also designed
to link the interests of the Company's executives to the interests of the
Company's shareholders.

At present, the executive compensation program is comprised of salary,
cash incentive opportunities, long-term incentive opportunities in the form
of stock options, and benefits typically offered to executives by major
corporations. As an executive's level of responsibility increases, the
greater the mix of compensation shifts to reliance on the value of the
Common Stock through stock-based awards.

Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to a public company for compensation over $1 million paid to its
chief executive officer and its four other most highly compensated
executive officers. Qualifying performance-based compensation is not
subject to the deduction limit if certain requirements are met. It is the
Board's objective to maximize deductibility under Section 162(m) with
minimal sacrifices in flexibility and corporate objectives. Accordingly,
with respect to compensation payable to an applicable executive officer
which would otherwise be nondeductible, it is the Company's policy that
such amounts be deferred until the limitation on deductibility no longer
applies with respect to such person.

COMPENSATION ELEMENTS

BASE SALARY

At the executive officer level, base salaries are conservative when
compared with companies of similar size and financial performance. Salary
ranges are assigned to each position based on a comparison of the Company's
positions with similar positions in companies of similar size in the
Company's industry, with range midpoints established at the average of the
marketplace. Actual salaries within the appropriate range depend upon
individual performance, experience and internal equity and are reviewed and
may be adjusted annually by the Company. Salary levels for executives other
than the Chief Executive Officer were determined for 2000 by Mr. Kubacki,
the Chief Executive Officer, based on the foregoing criteria.

INCENTIVE COMPENSATION

The Company has generally not paid cash bonuses to executive officers
as rewards for superior performance, preferring instead to reward executive
officers with equity-based compensation in the form of stock options.

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STOCK OPTIONS

In May, 2000, the Company adopted a new stock option plan for
officers, directors, and employees called the Psychemedics Corporation 2000
Stock Option Plan (the "2000 Stock Option Plan"). The 2000 Stock Option
Plan superceded the Company's 1989 Employee Plan. Under the 2000 Stock
Option Plan the Stock Option Committee of the Board of Directors may grant
options with terms of up to ten years. The options generally become
exercisable with respect to 25% of the shares covered thereby on the first
anniversary of the date of grant and with respect to an additional 25% on
each of the next three anniversary dates thereafter. In granting the stock
options to executives, the Stock Option Committee of the Board of Directors
takes into account the practices of other companies of comparable size as
well as the executive's level of responsibility and past contributions to
the Company, particularly in light of the Company's practice not to award
cash bonuses. In May, 2000, the Stock Option Committee granted options to
executive officers of the Company, other than the Chief Executive Officer,
and to other key employees of the Company based on 1999 operating results.

COMPENSATION TO THE CHIEF EXECUTIVE OFFICER

Mr. Kubacki's annual base salary was last adjusted in May, 1999. In
establishing the rate of salary, the Board considered the Company's
financial performance for the prior year and over an extended period of
time, Mr. Kubacki's individual performance, and his long-term contributions
to the success of the Company. Mr. Kubacki did not receive an increase in
salary in 2000. At his request, the Board did not grant to Mr. Kubacki any
stock options in 2000.

A. Clinton Allen
Donald F. Flynn
Fred J. Weinert
Walter S. Tomenson
Werner A. Baumgartner, Ph.D.
Raymond C. Kubacki, Jr.

-11-
15

COMPENSATION OF DIRECTORS

Messrs. Kubacki, Baumgartner and Allen receive no additional compensation
for serving on the Company's Board of Directors. The Company's outside
(non-employee) directors each receive cash compensation in the amount of $5,000
for each meeting attended.

Under the Company's 1989 Non-Qualified Stock Option Plan (the "1989
Non-Employee Director Plan"), until it was discontinued on March 21, 2000, each
outside director automatically received a grant of an option for 25,750 shares
upon his appointment to the Board. Each such option had an exercise price equal
to the market value per share of the Company's Common Stock on the automatic
grant date, had a term of ten years and became exercisable over a period of
twenty-four months from the date of grant in equal monthly installments on a
cumulative basis. Under the 1989 Non-Employee Director Plan, each outside
director also automatically received, effective March 15, of each year, a grant
of an option for 20,600 shares. Each such option was for a term of ten years,
became exercisable in full twelve (12) months after the date of grant, and had
an exercise price equal to the market value per share of the Company's Common
Stock on the automatic grant date.

Options under the 1989 Non-Employee Director Plan were not transferable by
the optionee otherwise than by will or the laws of descent and distribution and
terminated if the optionee ceased to serve as a member of the Company's Board of
Directors. In the event of the optionee's death or permanent disability, the
option became exercisable in full and the optionee or his heirs, legatees or
legal representatives could exercise the option during the following one year
period or the remainder of the option term, whichever period is shorter.

On March 15, 2000, each outside director was granted an option to acquire
20,600 shares at an exercise price of $5.13 per share, representing the market
price on the date of grant. Each such option was granted under the 1989
Non-Employee Director Plan.

Directors are also eligible to receive the grant of discretionary options
under the Company's 2000 Stock Option Plan.

-12-
16

STOCK PRICE PERFORMANCE GRAPH(1)

[LINE GRAPH]

ASSUMES $100 INVESTED ON JAN. 1, 1996
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2000

1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----

PSYCHEMEDICS CORPORATION 100.00 107.46 109.08 95.25 96.26 102.40
RUSSELL 2000 INDEX(2) 100.00 116.61 142.66 138.66 165.82 158.66
AMEX MARKET INDEX(3) 100.00 105.52 126.97 125.25 156.15 154.23

(1) The above graph assumes a $100 investment on January 1, 1996, through the
end of the 5-year period ended December 31, 2000 in the Company's Common
Stock, the Russell 2000 Index and the AMEX Market Value Index. The prices
all assume the reinvestment of dividends.

(2) The Russell 2000 Index is comprised of the smallest 2,000 companies in the
Russell 3,000 Index. The Company has been unable to identify a peer group
of companies that engage in testing of drugs of abuse, except for large
pharmaceutical companies where such business is insignificant to such
companies' other lines of businesses. The Company therefore uses in its
proxy statements a peer index based on market capitalization.

(3) The AMEX Market Value Index includes companies whose shares are traded on
the American Stock Exchange.

-13-
17

PRINCIPAL STOCKHOLDERS AND STOCKHOLDINGS
OF MANAGEMENT

The following table shows, as of March 15, 2001, the number of shares
beneficially owned (i) by those stockholders who are known to the Company to own
beneficially more than five percent of the outstanding Common Stock of the
Company, (ii) by each director and nominee for director of the Company, (iii) by
each named executive officer, and (iv) by all directors and executive officers
as a group.

Amount and Nature of Percentage
Name Beneficial Ownership(1) Owned(2)
- ---- ----------------------- ----------

H. Wayne Huizenga 2,356,791 (3) 11.1%
450 E. Las Olas Blvd. Suite 1500
Fort Lauderdale, Florida 33301

Donald F. Flynn 2,139,880 (4)(5) 10.1%
676 North Michigan Avenue
Suite 4000
Chicago, Illinois 60611

John J. Melk(6) 2,164,622 10.2%
919 North Michigan Avenue
Suite 2900
Chicago, Illinois 60611

Richard T. Christoph 1,991,350 9.4%
1156 Lynnette Drive
Lake Forest, Illinois 60045

Thomas J. Campbell 1,451,350 (6) 6.9%
c/o Cisar and Mrofka Ltd.
1550 Spring Road #210
Oak Brook, IL 60523

Werner A. Baumgartner, Ph.D. 1,013,203 (4)(7) 4.8%

Raymond C. Kubacki, Jr. 950,905 (4) 4.4%

A. Clinton Allen 825,899 (4) 3.9%

Fred J. Weinert 498,537 (4)(8) 2.3%

William Thistle 95,500 (4) *

Michael I. Schaffer 28,750 (4) *

Peter C. Monson 26,250 (4) *

Walter S. Tomenson 38,824 (4) *

All Executive Officers and 5,630,248 (9) 25%
Directors as a group (10 persons)

* denotes ownership of less than 1%

-14-
18

(1) Shares are considered beneficially owned, for the purpose of this table
only, if held by the person indicated as beneficial owner, or if such
person, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise has or shares the power to vote,
to direct the voting of and/or to dispose of or to direct the disposition
of such security, or if the person has the right to acquire beneficial
ownership within sixty (60) days, unless otherwise indicated in these
footnotes.

(2) Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock which an individual or group has a right to acquire within 60
days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed outstanding for the purpose of
computing the percentage ownership of any other person shown in this table.

(3) Includes: (i) 1,583,467 shares held by a limited partnership controlled by
said individual and (ii) 8,386 shares owned by said individual's spouse.

(4) Includes the following number of shares of Common Stock which the
individual has a right to acquire within 60 days pursuant to the exercise
of options: Mr. Allen - 257,050; Dr. Baumgartner - 79,950; Mr. Kubacki -
603,502; Mr. Flynn - 102,400; Mr. Weinert - 106,800; Mr. Thistle - 95,500;
Mr. Schaffer - 28,750; Mr. Monson - 26,250 and Mr. Tomenson - 38,824.

(5) Includes: (i) 19,326 shares owned by Mr. Flynn as trustee under Grantor
Trust Agreement dated April 24, 1989, as amended; (ii) 1,713,160 shares
held by DNB LP as to which said individual, as President and sole director
of the general partner, has sole dispositive and voting power; and (iii)
304,994 shares owned by said individual's spouse.

(6) Includes: (i) 692,500 shares over which said individual has shared voting
and dispositive power with his spouse as joint tenants; and (ii) 460,250
shares held by a limited partnership controlled by said individual's
spouse.

(7) Includes: (i) 803,253 shares held by said individual as trustee of the
Baumgartner Family Trust dated April 26, 1994; and (ii) 130,000 by said
individual as trustee of the Baumgartner Charitable Trust dated June 1,
1995, each of which said individual shares voting and dispositive power
with his spouse.

(8) Includes 306,453 shares held by Mr. Weinert as trustee under the Fred J.
Weinert, Jr. Revocable Insurance Trust u/t/a dated May 17, 1982.

(9) Includes 1,351,526 shares which the executive officers and directors have
the right to acquire within 60 days pursuant to the exercise of options.

-15-
19

INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors has selected as the Company's independent auditors
for the year ended December 31, 2001, the firm of Arthur Andersen LLP and
recommends ratification of such selection by the stockholders. A representative
of Arthur Andersen LLP is expected to be present at the Annual Meeting and will
be available to respond to appropriate questions.

For the year ended December 31, 2000, Arthur Andersen LLP billed the
Company for services in the following categories:

Audit Fees $40,000
Financial Information Systems Fees 0
All Other Fees (tax preparation) 20,000
-------
Total Fees $60,000

The Audit Committee has considered whether the provision of non-audit
services by Arthur Andersen LLP is compatible with maintaining auditor
independence.

STOCKHOLDER PROPOSALS

Proposals of stockholders intended to be presented at the next Annual
Meeting of Stockholders must comply with Rule 14a-8 of the Securities and
Exchange Commission issued under the Securities Exchange Act of 1934, and must
be received at the principal executive offices of the Company not later than
December 3, 2001.

OTHER MATTERS

The Board of Directors knows of no other matters which may come before the
Meeting. However, if any matter not now known is presented at the Meeting, it is
the intention of the persons named in the accompanying form of proxy to vote
said proxy in accordance with their judgment on such matter.

The Company will bear the cost of solicitation of proxies. Solicitations of
proxies by mail may be followed by telephone or other personal solicitation of
certain stockholders by officers or other employees of the Company.

By order of the Board of Directors,

EDWARD S. BREWER, JR.,
Secretary

April 2, 2001

-16-
20

EXHIBIT A

AUDIT COMMITTEE CHARTER

A. PURPOSE AND SCOPE

The primary function of the Audit Committee (the "Committee") is to assist
the Board of Directors in fulfilling its responsibilities by reviewing: (i) the
financial reports provided by the Corporation to the Securities and Exchange
Commission ("SEC"), the Corporation's shareholders or to the general public, and
(ii) the Corporation's internal financial and accounting controls.

B. COMPOSITION

The Committee shall be comprised of a minimum of three directors as
appointed by the Board of Directors, who shall meet the independence and audit
committee composition requirements under any rules or regulations of The
American Stock Exchange, as in effect from time to time, and shall be free from
any relationship that, in the opinion of the Board of Directors, would interfere
with the exercise of his or her independent judgment as a member of the
Committee.

All members of the Committee shall either (i) be able to read and
understand fundamental financial statements, including a balance sheet, cash
flow statement and income statement, or (ii) be able to do so within a
reasonable period of time after appointment to the Committee. At least one
member of the Committee shall have employment experience in finance or
accounting, requisite professional certification in accounting, or other
comparable experience or background which results in the individual's financial
sophistication, including being or having been a chief executive officer, chief
financial officer or other senior officer with financial oversight
responsibilities.

The Board may appoint one member who does not meet the independence
requirements set forth above and who is not a current employee of the
Corporation or an immediate family member of such employee if the Board, under
exceptional and limited circumstances, determines that membership on the
Committee by the individual is required in the best interests of the Corporation
and its shareholders. The Board shall disclose in the next proxy statement after
such determination the nature of the relationship and the reasons for the
determination.

The members of the Committee shall be elected by the Board of Directors at
the meeting of the Board of Directors following each annual meeting of
stockholders and shall serve until their successors shall be duly elected and
qualified or until their earlier resignation or removal. Unless a Chair is
elected by the full Board of Directors, the members of the Committee may
designate a Chair by majority vote of the full Committee membership.

C. RESPONSIBILITIES AND DUTIES

To fulfill its responsibilities and duties the Committee shall:

DOCUMENT REVIEW

1. Review and assess the adequacy of this Charter periodically as conditions
dictate, but at least annually (and update this Charter if and when
appropriate).

2. Review with representatives of management and representatives of the
independent accounting firm the Corporation's audited annual financial
statements prior to their filing as part of the Annual Report on Form 10-K.
After such review and discussion, the Committee shall recommend to the
Board of Directors whether such audited financial statements should be
published in the Corporation's annual report on Form 10-K. The Committee
shall also review the Corporation's quarterly financial statements prior to
their inclusion in the Corporation's quarterly SEC filings on Form 10-Q.

A-1
21

3. Take steps designed to insure that the independent accounting firm reviews
the Corporation's interim financial statements prior to their inclusion in
the Corporation's quarterly reports on Form 10-Q.

INDEPENDENT ACCOUNTING FIRM

4. Recommend to the Board of Directors the selection of the independent
accounting firm, and approve the fees and other compensation to be paid to
the independent accounting firm. The Committee shall have the ultimate
authority and responsibility to select, evaluate and, when warranted,
replace such independent accounting firm (or to recommend such replacement
for shareholder approval in any proxy statement).

5. On an annual basis, receive from the independent accounting firm a formal
written statement identifying all relationships between the independent
accounting firm and the Corporation consistent with Independence Standards
Board ("ISB") Standard 1. The Committee shall actively engage in a dialogue
with the independent accounting firm as to any disclosed relationships or
services that may impact its independence. The Committee shall take, or
recommend that the Board of Directors take, appropriate action to oversee
the independence of the independent accounting firm.

6. On an annual basis, discuss with representatives of the independent
accounting firm the matters required to be discussed by Statement on
Auditing Standards ("SAS") 61, as it may be modified or supplemented.

7. Meet with the independent accounting firm prior to the audit to review the
planning and staffing of the audit.

8. Evaluate the performance of the independent accounting firm and recommend
to the Board of Directors any proposed discharge of the independent
accounting firm when circumstances warrant. The independent accounting firm
shall be ultimately accountable to the Board of Directors and the
Committee.

FINANCIAL REPORTING PROCESSES

9. In consultation with the independent accounting firm and management, review
annually the adequacy of the Corporation's internal financial and
accounting controls.

COMPLIANCE

10. To the extent deemed necessary by the Committee, it shall have the
authority to engage outside counsel and/or independent accounting
consultants to review any matter under its responsibility.

REPORTING

11. Prepare, in accordance with the rules of the SEC as modified or
supplemented from time to time, a written report of the audit committee to
be included in the Corporation's annual proxy statement for each annual
meeting of stockholders occurring after December 14, 2000.

While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Corporation's financial statements are complete
and accurate and are in accordance with generally accepted accounting
principles.

A-2
22
PSYCHEMEDICS CORPORATION
PROXY FOR 2001 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 10, 2001

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Werner A. Baumgartner, Ph.D. and Raymond C.
Kubacki, Jr., or either of them (with full power to act alone), attorneys or
attorney of the undersigned (with full power of substitution to each), to vote
for and in the name of the undersigned, at the 2001 Annual Meeting of
Stockholders of Psychemedics Corporation (the "Company") to be held on Thursday,
May 10, 2001 at 2:00 p.m. at The Charles Hotel in Harvard Square, 1 Bennett
Street, Cambridge, Massachusetts 02138 and any adjournments thereof, according
to the number of shares and as fully as the undersigned would be entitled to
vote if personally present.

Without limiting the general authorization hereby given, said proxies are, and
each of them is, instructed to vote or act as follows on the proposals set forth
in the Company's Proxy Statement dated April 2, 2001 and on such other matters
as may properly come before the meeting.

- --------------------------------------------------------------------------------
PLEASE VOTE, DATE, AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN
ENCLOSED ENVELOPE.

- --------------------------------------------------------------------------------

Please sign this proxy exactly as your name appears on the books of the Company.
Joint owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If the shareholder is a corporation, the signature should
be that of an authorized officer who should state his or her title.

- --------------------------------------------------------------------------------

HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?

- -------------------------------- ---------------------------------

[X] Please mark votes as
in this example.

With For All
For hold Except
1.) Election of Directors. [ ] [ ] [ ]

Werner A. Baumgartner, Ph.D.; Raymond C. Kubacki, Jr.; A. Clinton Allen;
Donald F. Flynn; Walter S. Tomenson, Jr.; and Fred J. Weinert

NOTE: If you do not wish your shares voted "For" a particular nominee, mark
the "For All Except" box and strike a line through the name(s) of the
nominee(s). Your shares will be voted for the remaining nominee(s).

2.) Selection of Arthur Andersen LLP as
the Company's independent auditors. [ ] For [ ] Against [ ] Abstain

The Board of Directors recommends a vote FOR Proposals 1 and 2.

This proxy, when properly executed, will be voted in the manner directed by
the undersigned stockholder. if no direction is made, this proxy will be
voted FOR the proposals set forth in paragraphs (1) and (2).

PSYCHEMEDICS CORPORATION

Mark box at right is an address change or comment has been noted on the
reverse side of this card. [ ]

CONTROL NUMBER:
RECORD DATE SHARES:

---------------------------
Please be sure to sign and date this Proxy. Date

- --------------------------------------------------------------------------------

- ---------Stockholder sign here---------------------Co-owner sign here-----------

DETACH CARD ` DETACH CARD

PSYCHEMEDICS CORPORATION

Dear Shareholder:

Please take note of the important information enclosed with this Proxy
Ballot.

Your vote counts, and you are strongly encouraged to exercise your right to
vote your shares.

Please mark the boxes on the proxy card to indicate how your shares shall
be voted. Then sign the card, detach it and return your proxy vote in the
enclosed postage paid envelope.

Your vote must be received prior to the Annual Meeting of Stockholders, May
10, 2001.

Thank you in advance for your prompt consideration of these matters.

Sincerely,

Psychemedics Corporation