--- - |2+ Abstract Background Serious mental illness (SMI) is common among persons sentenced to life imprisonment for murder, yet little is known about how this affects rehabilitation, prospects of parole, or risk to the community. Aim The aim of this study is to compare outcomes for a national cohort of offenders charged with murder who were either convicted and sentenced to life in prison or placed on a forensic hospital order. Methods The 386 cases of murder charges in New Zealand between 1988 and 2000 were divided into three groups: perpetrators without SMI sentenced to life imprisonment (n = 313), perpetrators with SMI but sentenced to life imprisonment (n = 32), or those with such illness and found not guilty by reason of insanity (NGRI) who received a forensic hospital order (n = 41). Access to rehabilitative interventions, time to release, reoffending, and recall to prison or hospital were examined. Results Being in prison but having severe mental illness delayed release on parole but did not increase the risk of criminal recidivism or recall to prison. Hospital order patients were a demographically different group; they were released to the community earlier and had a lower rate of criminal recidivism. Conclusions This study provides some evidence that incarceration periods for life‐sentenced homicide perpetrators with SMI may be reduced without increasing community risk if hospital transfer and/or more targeted interventions are provided in prison. It also provides further evidence that persons found NGRI after a charge of murder have a relatively low risk of criminal recidivism. The stigma that may sometimes attach to such offenders is unwarranted, if it relies on concerns about risk of reoffending. - 'Criminal Behaviour and Mental Health, EarlyView. '