The study describes the police decisionmaking rules underlying the three major resolutions of incidents involving mentally disordered persons: hospitalization, arrest, and 'informal' disposition. All types of police-citizen interactions were observed. The presence of mental disorder was ascertained by a fieldworker using a symptom checklist that listed the major characteristics of severe mental disorder. Hospitalization was infrequent, less than .5 percent. Police mostly resolved a situation informally (71.8 percent for persons exhibiting signs of serious mental disorder and 93.5 percent for nonmentally ill persons). Virtually every police officer was aware of the stringent requirements for admission into the local psychiatric hospital -- either actively delusional or suicidal. Only 16.5 percent of the 85 mentally disordered persons were arrested. Arrest often was the only disposition available to the officer in situations where persons were not sufficiently disturbed to be accepted by the hospital but were too public in their deviance to be ignored. Neighborhood characters, 'troublesome persons,' and unobtrusive 'mentals' were likely to be handled by informal means -- the preferred means of disposition. Because of prior experiences with neighborhood characters, police knew how to soothe the mentally disordered person without medication or hospitalization, thus helping to maintain many mentally disordered persons within the community and making deinstitutionalization a more viable public policy. Accordingly, police departments must train their officers to legitimize police handling of the mentally ill. Twenty-seven references are provided.