Impending changes in the organization and financing of mental health and substance abuse services may have tremendous negative impacts on the criminal justice system. These may occur through the realignment of sector boundaries defining who is responsible for the care of high-risk or difficult-to-manage cases and from mounting pressures to shift costs of processing these cases from one system to another. People with co-occurring disorders will be most vulnerable to these negative impacts. The key element shared by managed care approaches is the prospective or concurrent review of care provided to individual patients. Managed care is now the predominant mechanism used by private health insurers to coordinate and manage mental health and substance abuse services, and States have been experimenting with various forms of managed care to gain control over rising costs and to assure improved access to primary care. The assumption implicit in managed care is that a comprehensive array of services, coupled with the flexibility to provide such services on the basis of individual medical and psychological needs, produces better outcomes and cost controls than traditional fee- for-service financing. Uncertainties about how things will play out in the mental health and substance abuse fields under managed care arrangements over the next few years are discussed. The impact of managed care on the criminal justice system is examined for police agencies, jails, prisons, and probation and parole agencies. Advantages and disadvantages of managed care for mentally ill offenders in the criminal justice system are noted. 12 references