Objective. To examine whether hydroxychloroquine (HCQ) usage is associated with a reduced risk of damage accrual in patients with systemic lupus erythematosus (SLE). Methods. Patients (n = 518) meeting the American College of Rheumatology criteria for diagnosis of SLE and with ≤5 years disease duration at study entry were followed up annually. Socioeconomic, demographic, clinical, and serologic manifestations as well as disease activity (by the Systemic Lupus Activity measure [SLAM]) and damage (by the Systemic Lupus International Collaborating Clinics damage index [SDI]) were measured. Propensity scores were calculated to adjust for confounding factors affecting treatment assignment. A Cox proportional hazards model was used to compare the risk of developing new damage according to HCQ use at enrollment into the study. Results. Fifty-six percent of the patients were treated with HCQ at the time of study enrollment. Patients who were not treated with HCQ on enrollment had higher SLAM and SDI scores than patients who were treated. Untreated patients were significantly more likely to have major organ involvement such as renal disease (P < 0.0001) or central nervous system disease (P < 0.0025). Results of unadjusted analysis suggested that treated patients were less likely to accrue damage (hazard ratio [HR] 0.68). With adjustment for differences in treatment assignment, HCQ usage was still associated with a reduced risk of developing new damage, with an HR of 0.68 (95% confidence interval [95% CI] 0.53-0.93) (P = 0.014). With adjustment for differences in treatment assignment, HCQ usage was still associated with a reduced risk of developing new damage (HR 0.73 [95% CI 0.52-1.00]) (P = 0.05). However, patients receiving HCQ who had no damage at study entry had a statistically significant decrease in the risk of damage accrual (HR 0.55 [95% CI 0.34-0.87]) (P = 0.0111), whereas those receiving HCQ who had damage at study entry did not (HR 1.106 [95% CI 0.70-1.74]) (P = 0.6630). Conclusion. These findings indicate that, after adjustment for propensity to receive HCQ, HCQ usage is independently associated with a reduced risk of damage accrual in SLE patients who had not yet accrued damage at the time of treatment initiation. © 2005, American College of Rheumatology.