Introduction: Potential hepatotoxicity associated with disease-modifying antirheumatic drugs (DMARDs) requires laboratory monitoring. In patients with rheumatoid arthritis (RA) or psoriatic arthritis (PsA), the incidence of elevated alanine aminotransferase/aspartate aminotransferase (ALT/AST) enzymes associated with methotrexate (MTX), leflunomide (LEF) and MTX+LEF versus other DMARDs was examined. Methods: Patients with RA and PsA enrolled in the Consortium of Rheumatology Researchers of North America (CORRONA) initiating DMARDs were identified. Abnormalities were identified when either was 1- or 2-fold times above the upper limits of normal (ULN). Odds ratios (OR) between MTX/LEF dose and elevated ALT/AST enzymes were estimated using generalised estimating equations. Interaction terms for use of MTX+LEF quantified the incremental risk of the combination compared with each individually. Results: Elevated ALT/AST levels (>16ULN) occurred in 22%, 17%, 31% and 14% of patients with RA receiving MTX, LEF, MTX+LEF or neither, respectively; elevations were 2.76-fold (95% CI 1.84 to 4.15) more likely in patients with PsA. Elevations >26ULN occurred in 1-2% of patients on MTX or LEF monotherapy compared with 5% with the combination. After multivariable adjustment and compared with either monotherapy, the combination of MTX and LEF was associated with a greater risk according to MTX dose used as part of the combination: MTX 10-17.5 mg/week, OR 2.91 (95% CI 1.23 to 6.90); MTX ≥20 mg/week, OR 3.98 (95% CI 1.72 to 9.24). Conclusions: Abnormal ALT/AST levels developed in 14-35% of patients with RA or PsA initiating DMARD therapy. The risks were incrementally greater in those with PsA and in those receiving MTX (≥10 mg/day) + LEF. These findings should help inform monitoring for potential hepatotoxicity in these patient populations.