DESPITE MAJOR ADVANCES IN THE GENERAL FIELD OF PSYCHIATRY, THE APPLICATION OF CLINICAL PSYCHIATRY IN PENAL INSTITUTIONS REMAINS AN UNDERDEVELOPED AREA. WHILE FORENSIC PSYCHIATRY OF THE CLASSIC DESCRIPTIVE SCHOOL BECAME ENGAGED IN THE CRIMINAL RESPONSIBILITY DEBATE BETWEEN LAW AND PSYCHIATRY, DYNAMIC PSYCHIATRY MADE PROGRESS IN THE TREATMENT OF JUVENILE OFFENDERS. THE MID-1800'S MARKED THE BEGINNING OF SIGNIFICANT STUDIES, AND RESULTING LITERATURE CONCERNING PSYCHIATRIC SERVICES IN PENAL INSTITUTIONS. EARLY STUDIES ATTEMPTED TO DISCERN THE DIFFERENCE BETWEEN GENUINE PSYCHOPATHOLOGICAL PROCESSES AND ADAPTATION TO THE ABNORMAL PRISON ENVIRONMENT. TODAY, AS IN 1900, THERE REMAINS A TENDENCY TO TREAT ALL MENTALLY ILL PRISONERS AS POTENTIALLY DANGEROUS. THIS PRESUMED DANGEROUSNESS IS OFTEN UNFOUNDED, AS ILLUSTRATED IN THE M'NAUGHTEN CASE OF 1843 AND THE 1966 SUPREME COURT BAXTROM DECISION. THREE METHODS OF DEALING WITH MENTALLY ILL PRISONERS WERE IDENTIFIED BY BAER IN 1897. THESE METHODS INCLUDE TRANSFERING THEM TO A MENTAL HOSPITAL, SEGREGATING THEM TO PRISON-LIKE ANNEXES OF MENTAL HOSPITALS, AND PLACING THEM IN INSTITUTIONS BUILT SPECIFICALLY FOR MENTALLY ILL OFFENDERS. THE THIRD METHOD IS STILL USED IN EUROPE AND THE UNITED STATES. NEW YORK WAS THE FIRST STATE TO ESTABLISH A SEPARATE FACILITY IN DANNEMORA IN 1900. SUCH INSTITUTIONS HAVE PROVEN UNSUCCESSFUL IN TERMS OF PSYCHIATRIC TREATMENT AND, IN MANY CASES, UNCONSTITUTIONAL IN TERMS OF DEPRIVATION OF THE INMATES' CIVIL LIBERTIES. IT IS SUGGESTED THAT PSYCHIATRIC AND MEDICAL SERVICES IN CORRECTIONAL INSTITUTIONS BE INTEGRATED WITH THEIR COUNTERPARTS IN FREE SOCIETY AND AFFILIATED, WHEREVER FEASIBLE, WITH TEACHING HOSPITALS. CONTINUING TREATMENT MUST BE ENSURED FOR ALL MENTALLY ILL OFFENDERS. REFERENCES ARE INCLUDED IN THE PAPER. (LWM)