This article begins with the history of the rise and fall of the state hospitals and subsequent criminalization of persons with serious mental illness (SMI). Currently, there is a belief among many that incarceration has not been as successful as hoped in reducing crime and drug use, both for those with and those without SMI. Moreover, overcrowding in correctional facilities has become a serious problem necessitating a solution. Consequently, persons with SMI in the criminal justice system are now being released in large numbers to the community and hopefully treated by public sector mental health. The issues to consider when releasing incarcerated persons with SMI into the community are as follows: diversion and mental health courts; the expectation that the mental health system will assume responsibility; providing asylum and sanctuary; the capabilities, limitations, and realistic treatment goals of community outpatient psychiatric treatment for offenders with SMI; the need for structure; the use of involuntary commitments, including assisted outpatient treatment, conservatorship and guardianship; liaison between treatment and criminal justice personnel; appropriately structured, monitored, and supportive housing; management of violence; and 24‐hour structured in‐patient care. Copyright © 2017 John Wiley & Sons, Ltd.