Psychemedics
C  O  R  P  O  R  A  T  I  O  N		BOSTON•LOS ANGELES•CHICAGO DALLAS•ATLANTA

April 3, 2007

Dear Stockholders:

     We cordially invite you to attend the Annual Meeting of Stockholders, which will be held at the Seaport Hotel, 200 Seaport Boulevard, Boston, MA 02210 on May 10, 2007, at 3:00 P.M.

     The notice of the Annual Meeting and the proxy statement on the following pages cover the formal business of the meeting. At the Annual Meeting, stockholders will elect directors for the forthcoming year. 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 the Company and its directors and officers. I hope that you will be able to attend.

Sincerely,

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

PSYCHEMEDICS CORPORATION

125 Nagog Park
Acton, Massachusetts 01720

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

April 3, 2007

     The Annual Meeting of Stockholders will be held on May 10, 2007 at 3:00 P.M at the Seaport Hotel, 200 Seaport Boulevard, Boston, MA 02210, for the following purposes:

	1.		To elect directors of the Company for the ensuing year and until their respective successors are chosen and qualified; and
	2.		To consider and act upon matters incidental to the foregoing and to transact such other business as may properly come before the Annual Meeting.

     The Board of Directors has fixed the close of business on March 12, 2007 as the record date for the determination of stockholders entitled to receive notice of, and to vote at, the Annual Meeting of Stockholders.

     The Company’s Annual Report for 2006 containing a copy of the Company’s Form 10-K (excluding exhibits) for the year ended December 31, 2006 is enclosed herewith.

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 Annual Meeting.

PSYCHEMEDICS CORPORATION

125 Nagog Park
Acton, Massachusetts 01720

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 10, 2007

     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, 2007 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 3, 2007. 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.

     Most stockholders of the Company hold their shares through a stockbroker, bank, trustee or other nominee rather than directly in their own name. As summarized below, there are some distinctions between shares held of record and those owned beneficially.

Stockholders of Record. If your shares are registered directly in your name with the Company’s transfer agent, ComputerShare, you are considered the stockholder of record of those shares and these proxy materials are being sent directly to you by the Company. As the stockholder of record, you have the right to grant your voting proxy directly to the Company or to vote in person at the Annual Meeting.

Beneficial Owner. If your shares are held in a stock brokerage account, by a bank, trustee or other nominee, you are considered the beneficial owner of shares held in street name and these proxy materials are being forwarded to you by your broker, trustee or nominee who is considered the stockholder of record of those shares. As the beneficial owner, you have the right to direct your broker, trustee or nominee on how to vote and are also invited to attend the Annual Meeting. However, since you are not the stockholder of record, you may not vote these shares in person at the Annual Meeting. Your broker, trustee or nominee is obligated to provide you with a voting instruction card for you to use.

     The presence in person or by proxy of stockholders entitled to cast a majority of the outstanding shares, or 2,592,549 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 four persons receiving the greatest number of votes will be elected. Withheld votes will not affect the outcome of the election. 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 four nominees named under “Election of Directors”, unless authority to do so is withheld with respect to one or more of the nominees. 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 Annual Meeting.

     As of March 12, 2007, the Company had outstanding 5,185,097 shares of Common Stock. The Common Stock is the only type of security entitled to vote at the Annual Meeting. Each share of Common Stock entitles the holder of record thereof at the close of business on March 12, 2007 to one vote on each of the matters to be voted upon 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 four and has nominated four 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 Annual Meeting, and unless authority to do so is withheld, it will be voted to elect as directors the following nominees: Raymond C. Kubacki, Jr., Harry F. Connick, Walter S. Tomenson and Fred J. Weinert. In the event that any of the nominees becomes 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.

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.			62			Chairman of the Board,
						Chief Executive Officer,
						President, Director and Nominee
Harry F. Connick			81			Director and Nominee, Member of Audit, Nominating and Compensation Committees
Walter S. Tomenson			60			Director and Nominee, Member of Audit, Nominating and Compensation Committees
Fred J. Weinert			59			Director and Nominee, Member of Audit, Nominating and Compensation Committees
William R. Thistle			57			Senior Vice President, General Counsel
Michael I. Schaffer, Ph.D.			62			Vice President,
						Laboratory Operations

     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. He has also served as Chairman of the Board since 2003. He is a

Director of Integrated Alarm Services Group Inc. He is also a trustee of the Center for Excellence in Education based in Washington, DC.

     Mr. Connick served as District Attorney for Orleans Parish (New Orleans, LA) from 1974 to 2003. In 2002, Mr. Connick received from Drug Czar John P. Walters the Director’s Award for Distinguished Service in recognition of exemplary accomplishment and distinguished service in the fight against illegal drugs. Mr. Connick has been a director of the Company since 2003.

     Mr. Tomenson is a Senior Advisor to Integro Ltd. From 1998 until 2004 he served as Managing Director and Chairman of Client Development of Marsh, Inc. From January 1, 2005 until March 31, 2005 he served as a consultant to Marsh, Inc. From 1993 to 1998, he was Chairman of FINPRO, the financial services division of Marsh, 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. Tomenson has been a director of the Company since 1999.

     Mr. Weinert is an entrepreneur whose current business activities are concentrated in real estate development, theatre and film development. He is the Chairman and Chief Executive Officer of Bella Media Plc. He is also the Chief Executive Officer of Barrington Services Group, Inc., Bella Cinema LLC, and San Telmo Inc. He has served on the Business Advisory Council for the University of Dayton for over 20 years. Mr. Weinert has been a director of the Company since 1991.

     Mr. Thistle has been a Senior Vice President of the Company since 2001 and General Counsel of the Company since 1995. He was a Vice President of the Company from 1995 to 2001. From 1993 to 1995, he served as Associate General Counsel for MGM Grand in Las Vegas. Mr. Thistle is a board member of the Drug and Alcohol Testing Industry Association.

     Dr. Schaffer has served as Vice President of Laboratory Operations since 1999. 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.

CORPORATE GOVERNANCE

General

     The Company believes that good corporate governance is important to ensure that the Company is managed for the long-term benefit of its stockholders. Over the past few years, the Company has undertaken a comprehensive review of its corporate governance policies and practices in light of the requirements imposed by the Sarbanes-Oxley Act of 2002, Securities and Exchange Commission rules and listing standards imposed by the American Stock Exchange. As part of this review, the Board of Directors has adopted a new charter for the Audit Committee, established a Nominating Committee, adopted a charter for the Nominating Committee and adopted a comprehensive Code of Ethics and Conduct. You may obtain a copy of the Company’s current committee charters and Code of Ethics and Conduct by writing to the Company at Investor Relations, Psychemedics Corporation, 125 Nagog Park, Acton, Massachusetts 01720. The Nominating Committee Charter is also posted on the Company’s web site at www.psychemedics.com.

Independence

     Under the rules of the American Stock Exchange, a majority of the directors and all of the members of the Audit Committee must qualify as independent directors. The Board of Directors of the Company conducts an annual review of the independence of the members of the Board and its committees. Three of our 4 directors are nonemployee directors (all except Mr. Kubacki). Although the

Board has not adopted categorical standards of materiality for independence purposes (other than those set forth in the American Stock Exchange listing standards), information provided by the directors and the Company did not indicate any relationships (e.g., commercial, industrial, banking, consulting, legal, accounting, charitable, or familial), which would impair the independence of any of the nonemployee directors.

Certain Relationships and Related Transactions

     The Board of Directors has a adopted a policy whereby the Company’s Audit Committee is responsible for reviewing any proposed related party transaction. The types of transactions covered by the policy include payments for products or services to or indebtedness to or from, related parties, as defined in Item 404(b) of Regulation S-K under the federal securities laws. The Audit Committee has determined that there were no related party transactions with any related party in fiscal 2006 that would require disclosure under Item 404(a) of Regulation S-K.

Board of Directors Meetings and Committees

     The Board of Directors has responsibility for establishing broad corporate policies and reviewing the overall performance rather than day-to-day operations. The Board’s primary responsibility is to oversee the management of the Company and, in so doing, serve the best interests of the Company and its stockholders. The Board selects, evaluates and provides for the succession of executive officers and, subject to stockholder election, directors. It reviews and approves corporate objectives and strategies, and evaluates significant policies and proposed major commitments of corporate resources. It participates in decisions that have a potential major economic impact on the Company. Management keeps the directors informed of Company activity through regular reports and presentations at Board and committee meetings.

     The Board of Directors met eight times in fiscal year 2006 (including teleconference meetings). In addition, the directors acted by unanimous written consent in lieu of meetings on three occasions during 2006. During fiscal year 2006, each of the directors attended at least 75% of the total number of meetings of the Board of Directors and the committees of which such director was a member. The Board has standing Audit, Compensation and Nominating Committees. The Audit Committee and the Nominating Committee each has a charter that has been approved by the Board. Each committee must review the appropriateness of its charter and perform a self-evaluation at least annually. Mr. Kubacki is the only director who is also an employee of the Company. He does not participate in any meeting at which his compensation is evaluated. All members of all committees are non-employee directors.

     The Company encourages all incumbent directors, as well as all nominees for election as director, to attend the Annual Meeting of Stockholders. All of the Company’s directors except for Mr. Connick attended the Company’s Annual Meeting in May, 2006.

     Audit Committee

     The Audit Committee, whose members are Messrs. Connick, Tomenson and Weinert, reviews the appropriateness, quality and acceptability of the Company’s accounting policies and the integrity of financial statements reported to the public, and compliance with legal and regulatory requirements. The Board has determined that each member of the Audit Committee satisfies the requirements of the American Stock Exchange regarding competency in financial matters. In addition, the Board of Directors has determined that Mr. Weinert, the Chairman of the Audit Committee, qualifies as an “audit committee financial expert” as defined by the Securities and Exchange Commission rules. None of Messrs. Connick, Tomenson or Weinert serves on the audit committees of any other public company. The responsibilities of the Audit Committee and its activities during fiscal year 2006 are described in the Report of the Audit Committee set forth below in this proxy statement.

     Compensation Committee

     The Compensation Committee, whose members are Messrs. Connick, Tomenson and Weinert, held two meetings during 2006. The Compensation Committee does not have a charter. The responsibilities of the Compensation Committee and its activities during fiscal year 2006 are described below under the caption “Compensation Discussion and Analysis”.

     Compensation Committee Interlocks and Insider Participation

     None of Messrs. Connick, Tomenson or Weinert has ever been an officer or employee of the Company or any subsidiary of the Company and no executive officer of the Company serves on the board of directors of any company at which any of the Compensation Committee members is employed.

     Nominating Committee

     The Nominating Committee, whose members are Messrs. Connick, Tomenson and Weinert, held two meetings during 2006. The Nominating Committee is charged with identifying and screening candidates, consistent with criteria approved by the Board of Directors, and making recommendations to the Board of Directors as to persons to be nominated by the Board of Directors for election thereto by the stockholders or to be chosen by the Board of Directors to fill newly created directorships or vacancies on the Board of Directors. The Board of Directors has determined that each of the members of the Nominating Committee is independent as defined in the American Stock Exchange’s listing standards.

     The Nominating Committee identifies Board candidates through numerous sources, including recommendations from Directors, executive officers and stockholders of the Company. The Nominating Committee evaluates identified Board candidates based on the criteria established by and periodically reviewed by the Nominating Committee. The Nominating Committee seeks to identify those individuals most qualified to serve as Board members and will consider many factors with regard to each candidate, including judgment, integrity, diversity, prior experience, the interplay of the candidate’s experience with the experience of other Board members, the extent to which the candidate would be desirable as a member of any committees of the Board, and the candidate’s willingness to devote the time and effort required for Board responsibilities. Selected candidates are interviewed by members of the committee and certain other Board members. Based on the foregoing, the Nominating Committee makes recommendations to the Board with respect to director nominees.

     The Company’s stockholders may recommend individuals to the Nominating Committee for consideration as potential director candidates at the Company’s 2008 Annual Meeting by submitting their names and appropriate background and biographical information to the Company’s Nominating Committee, Psychemedics Corporation, 125 Nagog Park, Acton, Massachusetts 01720 not later than December 3, 2007. Assuming that the appropriate information has been timely provided, the Nominating Committee will consider these candidates substantially in the same manner as it considers other Board candidates it identifies.

Stockholder Communications

     Historically, the Company has not adopted a formal process for stockholder communications with the Board. Nevertheless, every effort has been made to ensure that the Board or individual directors, as applicable, hear the views of stockholders and that appropriate responses are provided to stockholders in a timely manner. Any matter intended for the Board, or for any individual member or members of the Board, should be directed to the Secretary of the Company, Psychemedics Corporation, 125 Nagog Park, Acton, Massachusetts 01720, with a request to forward the same to the intended recipient.

Report of the Audit Committee

     The Audit Committee of the Board of Directors is responsible for providing independent, objective oversight of the Company’s accounting functions and internal controls. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls. The Audit Committee oversees the financial reporting process on behalf of the Board of Directors, reviews financial disclosures, and meets privately, outside the presence of management, with the independent auditors to discuss internal accounting control policies and procedures. In fulfilling its oversight responsibilities, the Audit Committee reviews the audited financial statements in the Annual Report on Form 10-K with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The Audit Committee reports on these meetings to the Board of Directors. The Audit Committee also selects and appoints the independent auditors, reviews the performance of the independent auditors in the annual audit and in assignments unrelated to the audit, and pre-approves the independent auditors’ services. The Audit Committee operates under a written charter adopted by the Board of Directors, a copy of which can be viewed on the Company’s website under “Corporate Governance”.

     The Audit Committee is composed of three non-employee directors, Messrs. Connick, Tomenson and Weinert, each of whom is an “independent director” under the rules of the American Stock Exchange governing the qualifications of the members of audit committees. The Audit Committee held six meetings during 2006. Mr. Weinert qualifies as an “audit committee financial expert” under the rules of the Securities and Exchange Commission. In addition, the Board of Directors has determined that each member of the Audit Committee meets the minimum standards regarding competency in financial matters required under the rules of the American Stock Exchange. None of Messrs. Connick, Tomenson and Weinert serves on the audit committees of any other public company.

     The Audit Committee reviewed with the independent auditors their judgments as to the quality, not just the acceptability, of accounting principles and such other matters as are required to be discussed with the Audit Committee under the standards of the Public Company Accounting Oversight Board (United States). In addition, the Audit Committee has discussed with the independent auditors (i) the matters required to be discussed under Codification of Statements on Auditing Standards, AU§380, and (ii) the auditors’ independence from the Company and its management, including the matters in the written disclosures we received from the auditors as required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees”. The Audit Committee concluded that BDO Seidman, LLP’s provision of audit and non-audit services to the Company is compatible with BDO Seidman, LLP’s independence. Based on its review and discussions, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

     Members of the Audit Committee:

Harry F. Connick
Walter S. Tomenson
Fred J. Weinert

Independent Auditors Fees and Other Matters

     The following table presents fees for audit services rendered by the Company’s independent auditors for the audit of the Company’s annual financial statements for the years ended December 31, 2006 and 2005, and fees billed for other services during those periods.

		Fiscal Year				Fiscal Year
		2006				2005
Audit Fees (1)		$	131,500			$	116,500
Audit-Related Fees (2)			11,000				8,200
Tax Fees (3)			25,000				31,200
All Other Fees (4)			0				2,000
Total		$	167,500			$	157,900

Audit Committee Pre-Approval Policy of Audit and Permissible Non-Audit Services of Independent Auditors

     The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. Any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The Audit Committee may delegate pre-approval authority to one or more of its members when expedition of services is necessary. The independent auditors and management are required to periodically report to the full Audit Committee regarding the extent of services provided by the independent auditors, in accordance with this pre-approval policy, and the fees for the services performed to date.

Director Compensation

     Mr. Kubacki receives no additional compensation for serving on the Company’s Board of Directors. Each of the Company’s outside (non-employee) directors receives cash compensation of $30,000 per year, or $7,500 per quarter. In addition, Mr. Weinert, the Chairman of the Audit Committee, receives additional cash compensation of $7,500 per year ($1,875 per quarter).

     On May 11, 2006, Messrs. Connick, Tomenson and Weinert, who constituted the Company’s outside directors, were each issued 1,300 stock unit awards, each such stock unit award representing the right to receive one share of Common Stock of the Company. The stock unit awards were granted under the Company’s 2006 Equity Incentive Plan. Each such award vests with respect to 50% of the shares covered thereby on April 30, 2007 and with respect to the balance of the shares on April 30, 2008, in each case, so long as the recipient remains in continuous service as a member of the Board of Directors of the Company through each such vesting date. Any unvested stock unit awards terminate upon the cessation of a recipient’s service as a member of the Board of Directors, subject to partial vesting in the

case of termination on account of death or permanent disability. In the event of a change in control of the Company (as defined in the restricted stock agreement evidencing the award) the share unit awards become fully vested immediately prior to the effective date of such change in control.

     The following table shows, for the fiscal year ended December 31, 2006, the compensation paid by the Company or accrued for such year, to the Company’s non-employee directors. The compensation paid to Mr. Kubacki for his service as Chairman, Chief Executive Officer and President, is reported in the Summary Compensation Table under the caption “Executive Compensation” below.

Director Compensation For Fiscal Year Ended December 31, 2006

(a)		(b)				(c)				(d)				(e)				(f)				(g)				(h)
																		Change in
																		Pension Value
																		and Non-
		Fees												Non-Equity				qualified
		Earned				Stock				Option				Incentive Plan				Deferred				All other
		or Paid in				Awards				Awards				Compensation				Compensation				Compensation				Total
Name		Cash ($)				($)(1)				($)				($)				Earnings ($)				($)				($)
Harry Connick			30,000				6,927	(2)			—				—				N/A				(3	)			36,927
Walter Tomenson			30,000				6,927	(2)			—				—				N/A				(3	)			36,927
Fred J. Weinert			37,500				6,927	(2)			—				—				N/A				(3	)			44,427

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview of Compensation Program

     The Compensation Committee (for purposes of this analysis, the “Committee”) of the Board has responsibility for establishing, implementing and continually monitoring adherence with the Company’s compensation philosophy. The Committee ensures that the total compensation paid to the executive officers is fair, reasonable and competitive.

     Throughout this proxy statement, the individuals who served as the Company’s Chief Executive Officer and Chief Financial Officer during fiscal 2006, as well as the other individuals included in the Summary Compensation Table on page 12, are referred to as the “named executive officers”.

Compensation Philosophy and Objectives

     The Committee believes that the most effective executive compensation program is one that is designed to reward the achievement of specific annual performance goals by the Company, and which aligns executives’ interests with those of the stockholders by rewarding performance with the ultimate objective of improving stockholder value. The Committee evaluates both performance and compensation to ensure that the Company maintains its ability to attract and retain superior employees in key positions

and that compensation provided to key employees remains competitive relative to the compensation paid to similarly situated executives of similarly sized public companies. To that end, the Committee believes executive compensation packages provided by the Company to its executives, including the named executive officers, should include both cash and stock-based compensation that reward performance as measured against established goals.

Role of Executive Officers in Compensation Decisions

     The Committee makes all compensation decisions for the Chief Executive Officer, but takes into account his recommendations when making compensation decisions with respect to the other executive officers.

     The Chief Executive Officer annually reviews the performance of each other executive officer. The conclusions reached and recommendations based on these reviews, including with respect to salary adjustments and annual award amounts, are presented to the Committee. The Committee can exercise its discretion in modifying any recommended adjustments or awards to executives.

Setting Executive Compensation

     Based on the foregoing objectives, the Committee has structured the Company’s annual and long-term incentive-based cash and non-cash executive compensation to motivate executives to achieve the business goals set by the Company and reward the executives for achieving such goals.

     In making compensation decisions, the Committee compares each element of total compensation against what the Committee believes to be the average amount paid to similarly situated executives at publicly-traded and privately-held companies.

     A significant percentage of total compensation is allocated to incentives as a result of the philosophy mentioned above. The Committee determines the appropriate level and mix of incentive compensation. Income from such incentive compensation is realized as a result of the performance of the Company or the individual, depending on the type of award, compared to established goals. Historically, the Committee granted a significant portion of each executive officer’s total compensation in the form of stock options. More recently, reflecting in part the recent change in the accounting treatment of option grants, the Company began awarding a significant portion of its total compensation payable to executive officers in the form of cash bonus awards tied to achievement of performance goals and to the award of restricted stock units that would become vested over a period of time.

2006 Executive Compensation Components

     For the fiscal year ended December 31, 2006, the principal components of compensation for named executive officers were:

	•		base salary
	•		performance-based incentive compensation; and
	•		long-term equity incentive compensation

     Base Salary

     The Company provides named executive officers and other employees with base salary to compensate them for services rendered during the fiscal year. Base salary ranges for named executive officers are determined for each executive based on his or her position and responsibility.

     During its review of base salaries for executives, the Committee primarily considers:

	•		internal review of the executive’s compensation, both individually and relative to other executive officers; and
	•		individual performance of the executive

     Salary levels are typically considered annually as part of the Company’s performance review process as well as upon a promotion or other change in job responsibility. Merit based increases to salaries of executive officers are based on the Committee’s assessment of the individual’s performance.

     Bonus Compensation

     In January, 2007, the Committee awarded cash bonuses to the named executive officers based on achievement by the Company of earnings per share targets and based upon achievement by the executive officers of individual performance targets, in each case, during fiscal 2006.

     Long-Term Incentive Compensation

          Restricted Stock Awards.

     In 2006, the Company adopted a new stock based plan called the 2006 Equity Incentive Plan (the “Equity Incentive Plan”). Under the Equity Incentive Plan, up to 250,000 shares of Common Stock (subject to adjustment in the event of stock splits, stock dividends and other similar events) may be issued. The Equity Incentive Plan is intended to benefit the Company and its subsidiaries through offering certain present and future officers, directors, employees and consultants a favorable opportunity to become holders of stock in the Company over a period of years, thereby giving them a permanent stake in the growth and prosperity of the Company and encouraging the continuance of their services with the Company and/or its subsidiaries through (a) the grant of options which qualify as “incentive stock options” under Section 422(b) of the Internal Revenue Code of 1986, as amended, (b) the grant of options which do not qualify as incentive stock options (“non-qualified stock options”), (c) the issuance of restricted stock, (d) the grant of stock bonuses, or (e) the grant or issuance of other stock-based rights, which may include, for example, stock appreciation rights and restricted stock units (all of the foregoing being hereinafter referred to collectively as “Awards”).

     In May, 2006, the Committee granted Awards in the form of restricted stock units to each of the executive officers. Each of the units vests over the four-year period following the date of grant and is convertible into shares of Common Stock of the Company upon vesting. The number of units awarded to each of the executive officers in 2006 and the value of such awards is set forth below in the Grants of Plan Based Awards Table on page 13. In addition, the value of the awards attributable to the vesting period that occurred during 2006 is reflected in the Summary Compensation Table on page 12.

          Stock Options

     While the Company has in the past granted options to acquire shares of its capital stock, it did not grant any options in 2006.

     Retirement and Other Benefits

     The Company maintains a 401(k) profit sharing plan for the benefit of all employees who have satisfied minimum age and service requirements. Employees have the opportunity to contribute to the plan on a before tax basis, subject to limits prescribed under the Internal Revenue Code. The Company will match 50% of the first 6% of pay that is contributed to the plan, subject to limits prescribed for highly compensated employees. All employee contributions to the 401(k) plan are fully vested upon contribution. The Company’s matching contributions vest ratably over a five year period. The Company does not maintain any separate non-qualified retirement plans.

     Perquisites and Other Personal Benefits

     Any perquisites or other personal benefits that the Company offers to its executive officers are below the threshold limit ($10,000 per executive, per annum) for reporting under SEC rules.

     The Company has entered into Change of Control Severance Agreements with certain key employees, including certain named executive officers. The Change of Control Severance Agreements are designed to promote stability and continuity of senior management. Information regarding applicable payments under such agreements for the named executive officers is provided under the heading “Potential Payments Upon Termination or Change in Control” on page 14.

Tax and Accounting Implications

     Deductibility of Executive Compensation

     As part of its role, the Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code, which provides that the Company may not deduct

compensation of more than $1,000,000 that is paid to certain individuals. The Company believes that all compensation paid to its executive officers is, or will be when paid, fully deductible for federal income tax purposes.

     Nonqualified Deferred Compensation

     On October 22, 2004, the American Jobs Creation Act of 2004 was signed into law, changing the tax rules applicable to nonqualified deferred compensation arrangements. While the final regulations have not become effective yet, the Company believes it is operating in good faith compliance with the statutory provisions which were effective January 1, 2005.

     Accounting for Stock-Based Compensation

     Beginning on January 1, 2006, the Company began accounting for stock-based payments including Awards under its Equity Incentive Plan in accordance with the requirements of FASB Statement 123(R).

Compensation Committee Report

     The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

THE COMPENSATION
     COMMITTEE

Fred J. Weinert
Harry Connick
Walter Tomenson

Summary of Cash and Certain Other Compensation

     The following table shows, for the fiscal year ended December 31, 2006, the total compensation earned by the Company’s Chief Executive Officer, and the Company’s other executive officers (collectively the “named executive officers”).

Summary Compensation Table

(a)		(b)				(c)				(d)				(e)				(f)				(g)				(h)				(i)				(j)
																										Change in
																										Pension
																										Value and
																										Nonquali-
																						Non-				fied
																						Equity				Deferred
																						Incentive				Compen-
														Stock				Option				Plan				sation				All Other
Name and Principal						Salary				Bonus				Awards				Awards				Compen-				Earnings				Compensa-
Position		Year				($)				($)(1)				($)(2)				($)(3)				sation				($)				tion ($)(4)				Total ($)
Raymond C. Kubacki, Jr. Chairman, CEO, & President			2006				333,668				69,000				26,642				—				—				—				6,600				435,910
Peter C. Monson Vice President, Treasurer, and Chief Financial Officer (5)			2006				152,560				31,000				5,328				—				—				—				5,449				194,337
William R. Thistle Senior Vice President and General Council			2006				243,728				50,000				13,320				—				—				—				6,600				313,648
Michael I. Schaffer Vice President Laboratory Operations			2006				199,423				41,000				7,993				—				—				—				4,644				253,060

Grants of Plan-Based Awards

All

Other

Stock

All Other

Estimated Future

Awards:

Option

Payouts Under Non-

Estimated Future Payouts

Number

Awards:

Grant Date

Equity Incentive Plan

Under Equity Incentive

of

Number of

Exercise or

Fair Value

Awards

Plan Awards

Shares

Securities

Base Price

of Stock

Thresh

Maxi-

Thresh-

Maxi-

of Stock

Underlying

of Option

and Option

-old

Target

mum

old

Target

mum

or Units

Options

Awards

Awards

Name

Grant Date

($)

($)

($)

(#)(1)

(#)

(#)

(#)

(#)

($/Sh)

($)

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

(k)

(l)

Raymond C. Kubacki, Jr.

5/11/2006

—

—

—

—

—

—

10,000

—

—

167,000

Peter C. Monson

5/11/2006

—

—

—

—

—

—

2,000

—

—

33,400

William R. Thistle

5/11/2006

—

—

—

—

—

—

5,000

—

—

83,500

Michael I. Schaffer

5/11/2006

—

—

—

—

—

—

4,000

—

—

66,800

Outstanding Equity Awards at Fiscal Year-End

		Option Awards										Stock Awards
																Equity
						Equity										Incentive
						Incentive										Plan
						Plan										Awards:
						Awards:										Number of		Equity Incentive
		Number		Number of		Number of								Market		Unearned		Plan Awards:
		of		Securities		Securities						Number of		Value of		Shares,		Market or Payout
		Securities		Underlying		Underlying						Shares or		Shares or		Units or		Value of
		Underlying		Unexercised		Unexer-						Units of		Units of		Other		Unearned Shares,
		Unexercised		Options		cised		Option				Stock That		Stock That		Rights		Units or Other
		Options		(#)		Unearned		Exercise		Option		Have Not		Have Not		That Have		Rights That Have
		(#)		Unexercis-		Options		Price		Expiration		Vested		Vested		Not Vested		Not Vested
Name		Exercisable		able		(#)		($)		Date		(#)		($)		(#)		($)
(a)		(b)		(c)		(d)		(e)		(f)		(g)		(h)		(i)		(j)
Raymond C.		77,300		—		—		$14.40		05/24/2015		10,000		192,500		—		—
Kubacki, Jr.		10,000		—		—		$11.85		05/13/2014
		8,751		—		—		$13.68		05/09/2012
		18,751		—		—		$18.00		05/06/2009
		17,500		—		—		$20.24		05/04/2008
Peter C. Monson		17,100		—		—		$14.40		05/24/2015		2,000		38,500		—		—
		3,000		—		—		$11.85		05/13/2014
		2,500		—		—		$13.68		05/09/2012
		6,250		—		—		$19.76		05/11/2010
		6,250		—		—		$18.00		05/06/2009
		2,500		—		—		$22.36		03/30/2008
William R. Thistle		40,600		—		—		$14.40		05/24/2015		5,000		96,250		—		—
		5,000		—		—		$11.85		05/13/2014
		12,500		—		—		$13.68		05/08/2012
		8,750		—		—		$19.76		05/11/2010
		7,500		—		—		$18.00		05/06/2009
		3,750		—		—		$20.24		05/04/2008
Michael I. Schaffer		16,600		—		—		$14.40		05/24/2015		4,000		77,000		—		—
		3,000		—		—		$11.85		05/13/2014
		2,500		—		—		$13.68		05/09/2012
		6,250		—		—		$19.76		05/11/2010
		2,500		—		—		$18.00		05/06/2009
		8,750		—		—		$17.36		04/21/2009

None of the Company’s named executive officers exercised any stock options during 2006 or became vested in any restricted stock units in 2006.

Potential Payments Upon Termination or Change in Control

     The Company has entered into change-in-control severance agreements with Messrs. Kubacki, Thistle and Monson providing for severance benefits for a period of up to 12 months in the event of termination within 12 months following a change in control (as defined in the agreements). The agreements provide for severance benefits only if (1) the Company undergoes a change in control (as defined in the agreement) and (2) within 12 months thereafter either (a) the Company (or its successor) terminates the employee (other than termination for “cause”), or (b) the employee terminates his employment for “good reason” (as defined in his agreement). The agreements do not provide for severance benefits in the event of an employee’s death or disability, or in the event of his voluntary termination without good reason, or on account of termination for any reason if not preceded within 12 months by a change in control. The agreements provide that the employee shall not compete with the Company during the period in which he is entitled to receive severance payments. Except for such

change-in-control severance agreements, and except as provided below with respect to Mr. Monson, none of Messrs. Kubacki, Thistle or Monson has an employment agreement with the Company.

     On May 11, 2006, each of the named executive officers entered into share unit award agreements pursuant to which each such executive officer was issued the share unit awards described above in the Grants of Plan-Based Awards table. Each share unit award agreement provides that the vesting accelerates upon a change in control.

     In the event the Company had incurred a change in control on December 31, 2006 and terminated the employment of all of the named executive officers on such date, the amounts paid out to the named executive officers would have been as follows:

Change in Control Termination Payments

(a)		(b)				(c)				(d)				(e)				(f)
		Salary												Acceleration
		and Bonus				Accrued				Health				Of
		Continuation				Vacation				Benefits				Equity
Name		($)(1)				($)				($)(2)				Awards ($)(3)				Total ($)
Raymond C. Kubacki, Jr. 12 month Change in Control Termination Payments (4)			402,668				39,809				21,738				192,500				656,715
6 month Change in Control Termination Payments (change of location only) (4)			201,334				39,809				10,869				192,500				444,512
Peter C. Monson 6 month Change in Control Termination Payments (5)			93,000				14,904				10,869				38,500				157,273
William R. Thistle 12 month Change in Control Termination Payments (6)			293,728				40,212				21,738				96,250				451,928
Michael I. Schaffer Acceleration benefits only (7)			—								—				77,000				77,000

PRINCIPAL STOCKHOLDERS AND
STOCKHOLDINGS OF MANAGEMENT

     The following table shows, as of March 12, 2007, 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, (including their addresses) (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)
Cortina Asset Management, LLC			633,028	(3)			12.2	%
330 East Kilbourn Avenue Suite 850 Milwaukee, WI 53202
H. Wayne Huizenga			589,135	(4)			11.3	%
450 E. Las Olas Blvd. Suite 1500 Fort Lauderdale, FL 33301
Ashford Capital Management, Inc.			339,700	(5)			6.5	%
P.O. Box 4172 Wilmington, DE 19807
Raymond C. Kubacki, Jr.			200,065	(6)(7)			3.8	%
Fred J. Weinert			161,832	(6)(7)(8)			3.1	%
William R. Thistle			79,350	(6)(7)			1.5	%
Walter S. Tomenson			43,188	(6)(7)			*
Michael I. Schaffer			40,350	(6)(7)			*
Peter C. Monson			25,250	(6)(7)			*
Harry F. Connick			17,388	(6)(7)			*
All Executive Officers and Directors as a group (6 persons)			567,423	(9)			10.2	%

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”), except as described below, the Company believes that all such filings required to be made by such Reporting Persons with respect to fiscal year 2006 were timely made in accordance with the requirements of the Exchange Act.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     The Company’s Audit Committee has approved BDO Seidman, LLP as the Company’s independent registered public accounting firm for fiscal year 2007. Notwithstanding such approval, the Audit Committee in its discretion may direct the appointment of a different firm at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders. Representatives of BDO Seidman, LLP will be available at the Annual Meeting to respond to questions.

STOCKHOLDER PROPOSALS

     Proposals of stockholders intended to be presented at the 2008 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, 2007.

OTHER MATTERS

     The Board of Directors knows of no other matters which may come before the Annual Meeting. However, if any matter not now known is presented at the Annual 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 3, 2007

PSYCHEMEDICS
CORPORATION

[CARD]

o   Mark box with an X if you have made changes to your name or address details above

Annual Meeting Proxy Card

(A)		Election of Directors
		The Board of Directors recommends a vote FOR the listed nominees.
		(01) Raymond C. Kubacki, Jr.		o For		o Withhold
		(02) Harry F. Connick		o For		o Withhold
		(03) Walter S. Tomenson, Jr.		o For		o Withhold
		(04) Fred J. Weinert		o For		o Withhold
(B)		Mark box at right if a comment has been noted below.      /      /
		DO YOU HAVE ANY COMMENTS?
(C)		Authorized Signatures – Sign Here – This section must be completed for your instructions to be executed.
		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.

Signature 1:

Signature 2:

Date:

Dear Stockholder:

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 will be voted. Then sign the card and return

your proxy in the enclosed postage paid envelope.

Your vote must be received prior to the Annual Meeting of Stockholders, May 10, 2007.

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

Sincerely,

Psychemedics Corporation

Proxy — Psychemedics Corporation

PROXY FOR 2007 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 10, 2007
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS

The undersigned hereby appoints Raymond C. Kubacki, Jr. attorney of the undersigned (with full power of substitution), to vote for and in the name of the undersigned, at the 2007 Annual Meeting of Stockholders of Psychemedics Corporation (the “Company”) to be held on Thursday, May 10, 2007 at 3:00 p.m. at the Seaport Hotel, 200 Seaport Boulevard, Boston, MA 02210 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 proxy is instructed to vote or act as follows on the proposal set forth in the Company’s Proxy Statement dated April 3, 2007 and on such other matters as may properly come before the meeting.

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 each of the nominees listed on proposal A set forth on the reverse side.

PLEASE VOTE, DATE, AND SIGN ON REVERSE SIDE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.