Reform of juvenile justice systems must focus on improving access to mental health services for all youth, better serving the needs of youth who are involved in the juvenile justice system, and creating effective alternatives to traditional residential placement facilities. Although youth who are charged with the most serious and violent offenses are more likely to be tried as adults and sentenced to adult prison, juveniles with mid-range offenses, including burglary, theft, or repeat nonviolent offenses often are placed in traditional juvenile residential facilities. These large facilities can range, in both setting and security, from rehabilitation camp-like programs to juvenile prisons. In a 2006 survey, a majority of juvenile offenders in residential facilities had at least one mental disorder. Although most juvenile residential facilities offer some therapy or counseling services, a nationally representative survey of over 7,000 incarcerated youth indicated that the majority of these facilities are unprepared to address the needs of youth in their custody. In addition, recent research shows that community-based centers are often more cost-effective than traditional residential placement facilities in achieving better outcomes for youth. Common community-based alternatives include centers that juvenile offenders attend in the community each evening, home detention, short-term shelter care, and small community homes. Among the recommendations offered are to improve judicial transfer laws to limit the number of juveniles processed as adults, improve services at residential facilities, and promote community-based alternatives to institutionalization. Strategies for implementing these recommendations are offered.