“Originally developed by the United States military to increase soldiers' combat effectiveness, Psycho grants the user increased Damage output and Damage Resistance for a limited period of time.”— Loading screen hint
Psycho is a powerful drug created by the US Army in an attempt to enhance the effectiveness of its infantry. Most details of the drug's development are unknown, including the specific techniques used in clinical trials and the degree of consent provided by military personnel who participated in the testing.
Although the US Army no longer exists in the Fallout 4 era, Psycho still sees prolific use throughout the Wasteland. This is likely due to Psycho's relatively easy manufacturing process, a mostly synthetic ingredient-oriented process that has multiple parts that can be replaced with the post-war mutant plant hubflower. Raiders commonly produce Psycho due to its abilities to stimulate aggression, ignore pain, and intoxicate. This is not to say that the drug doesn't see recreational use as well.
Even though Psycho can have severe side effects, such as bleeding gums and increased agitation, it sees plenty of use among wasteland settlers who simply want to feel like they have some kind of power.
Psycho has the looks of a normal syringe. It has canisters strapped on either side of the syringe, with wires running to the top and needle end of the syringe.
Psycho has the effect of giving damage resistance and a damage boost, essentially giving it the same capabilities as Slasher from Fallout: New Vegas. The withdrawal effects, if one gets addicted, makes them take more damage. Additionally psycho appears to make the Sole Survivor more aggressive, yelling violent expressions after using the drug.
Upon using Psycho, the player character may let out a crazed roar or exclaim battle taunts like "Bring it!" or "Fucking kill!", possibly alerting nearby enemies.
Mama Murphy can die by overdosing on Psycho. A similar effect can be seen with Pacer by spiking his Jet with Psycho in Fallout: New Vegas. This suggests that it can have long-term consequences, similar to real life drugs.
Psycho is also Cait's chem of choice, and has been using it for so long that no doctor can cure her. The quest Benign Intervention has the player seeking out Vault 95 in order to find and use the only means of curing Cait of her addiction.