In the U.S. the proportion of jail inmates who are severely mentally ill went from 0.7 percent in 1880 to having 10 to 16 percent in 1998. This increase in the number and percentage of mentally ill persons has been due largely to mistakes made in the process of deinstitutionalizing State mental hospitals. When anti-psychotic medications were introduced in the 1950's, it became possible for the first time to discharge some mentally ill individuals and let them live in the community. The concept of deinstitutionalization was valid, but the way in which it was implemented has led to frequent contacts between the criminal justice system and mentally ill persons in the community. Research has shown that between 40 and 50 percent of individuals with schizophrenia and manic-depressive illness have moderately to severely impaired insight that keeps them from recognizing their need for medication; consequently, they refuse to take medication voluntarily. These are the severely mentally ill individuals who are ending up in jails. Further, the patients who were being discharged from mental hospital were supposed to receive follow-up care from the newly created, federally funded community mental health centers. Data show that such follow-up is not occurring. Also, Federal law excludes State mental hospitals from receiving Federal funds except under very limited circumstances. In addition, changes in commitment laws have made it more difficult to commit mentally ill persons to mental institutions involuntarily. Recommendations are offered: (1) Mandate proper mental health services for severely mentally ill persons who cannot properly manage their illness themselves; (2) Provide follow-up care for severely mentally ill persons discharged from institutions; (3) Provide Federal funding for mental health services, both in institutions and outpatient care; and (4) State commitment laws should be changed to ensure that severely mentally ill individuals can be treated before they become homeless or commit an offense that puts them in jail or prison. 11 references