Objectives To evaluate the association between the degree of integration in community mental health teams (CMHTs) and: (i) the costs of service provision; (ii) rates of mental health inpatient and care home admission. Methods An observational study of service use and admissions to institutional care was undertaken for a prospectively‐sampled cohort of patients from eight CMHTs in England. Teams were chosen to represent ‘high’ or ‘low’ levels of integrated working practice and patients were followed‐up for seven months. General linear models were used to estimate service costs and the likelihood of institutional admission. Results Patients supported by high integration teams received services costing an estimated 44% more than comparable patients in low integration teams. However, after controlling for case mix, no significant differences were found in the likelihood of admission to mental health inpatient wards or care homes between team types. Conclusions Integrated mental health and social care teams appeared to facilitate greater access to community care services, but no consequent association was found with community tenure. Further research is required to identify the necessary and sufficient components of integrated community mental health care, and its effect on a wider range of outcomes using patient‐reported measures. © 2016 The Authors. International Journal of Geriatric Psychiatry published by John Wiley & Sons, Ltd.