In an attempt to resolve this contentious issue between the Western Australian Mental Health Services and the Department of Corrections, it has been proposed that the Department of Corrections construct a special psychiatric hospital to cater to these persons. However, this is only one of the four possible alternatives which depend upon whether mentally ill offenders are considered to be primarily 'mad,' 'bad,' both, or neither. After arguments are presented for and against each of the four alternative modes, it is suggested that the hybrid status of being labelled both 'mad' and 'bad,' which is the inevitable outcome of incarceration in a special psychiatric prison hosital, is possibly the least efficacious and most problematic means of catering to those charged or convicted of offenses and thought to be mentally ill or in need of a protected environment. Instead, a principle of decentralization is strongly recommended. It is suggested that, if each category of mentally ill persons within the criminal justice system is considered separately, then the responsibility for mentally ill offenders can be split effectively between legal, mental health, and correctional authorities. The categories of mentally ill persons would be those declared unfit to stand trial, those ordered to indeterminate detention on the grounds of mental condition (i.e., those found not guilty on the grounds of unsound mind and convicted persons ordered to indeterminate detention on the grounds of mental condition), and those found to be mentally ill or in need of a protected environment during imprisonment. By categorizing mentally ill persons to apportion responsibility among criminal justice authorities, the hybrid status of 'mad' and 'bad' is avoided, inmates' civil rights are protected, there is little financial expenditure, and administrative difficulties in dealing with a large 'problem' population are bypassed. Tabular data and 101 notes/references are supplied. (Author abstract modified)