In addition to complex behavioral and emotional issues, youth presenting to residential care tend to have higher rates of physical health conditions than those in the general population. Although a strong body of research has found a relationship between physical and mental health, the influence of health status on youth residential care outcomes has not been explored. This study examined the impact of poor physical health on mental health treatment outcomes in a sample of 1,735 youth entering residential care from 2000 to 2010. At intake, youth received medical evaluations identifying physical health conditions, medication prescriptions, and anthropometric measurements. Residential care outcomes were measured by changes in 1-year National Institute of Mental Health (NIMH) Diagnostic Interview Schedule for Children–IV mental health diagnoses and discharge setting. Rates of school dropout and placement stability were also examined 6 months after discharge. Results suggest that factors related to poor physical health, specifically nonpsychotropic medication prescriptions, are associated with suboptimal mental health outcomes at 1 year, discharge, and follow-up from residential care. These findings indicate that physical health issues adversely impact residential care outcomes, suggesting these youth may require specialized services, such as integrated treatment planning, to achieve optimal treatment outcomes.