Depends on your preferences for "horror" games. If you like action/horror games, I would recommend Dead Space. It is more an action game in a horror setting, but I loved it.
For true horror, I would go with something older in the "Silent Hill 2" genra and say Fatal Frame 2: Crimson Butterfly.
Condemnded is also a good one, also in the actiony genra, but some epic scare moments.
I was also a big fan of Alan Wake. A 3rd person action/horror game that I really enjoyed. Great story and good gameplay. Nice pacing and atmosphere. Combat gets repetitive, but it is fun repetative, and let's face it, what game isn't at least a little repetative.