AbstractStructural equation modelling has been used extensively in the behavioural and social sciences for studying interrelationships among manifest and latent variables. Recently, its uses have been well recognized in medical research. This paper introduces a Bayesian approach to analysing general structural equation models with dichotomous variables. In the posterior analysis, the observed dichotomous data are augmented with the hypothetical missing values, which involve the latent variables in the model and the unobserved continuous measurements underlying the dichotomous data. An algorithm based on the Gibbs sampler is developed for drawing the parameters values and the hypothetical missing values from the joint posterior distributions. Useful statistics, such as the Bayesian estimates and their standard error estimates, and the highest posterior density intervals, can be obtained from the simulated observations. A posterior predictive p‐value is used to test the goodness‐of‐fit of the posited model. The methodology is applied to a study of hypertensive patient non‐adherence to medication. Copyright © 2003 John Wiley & Sons, Ltd.