Close to 8,000 people with mental illness are in New York’s prisons and jails on any given day. About 15-20 percent of city jail inmates and 7-8 percent of State prisoners have mental illness. People with mental illness in New York’s prisons are marginalized because they usually lack employment or health insurance prior to incarceration, are primarily minorities and are disproportionately female, often are drug abusers, and are often homeless. New York simply incarcerates people with mental illness who have committed minor offenses and desperately need treatment. New York has no effective legal or informal mechanisms to divert offenders with mental illness into mental health treatment and out of the criminal justice system. Inmates with mental illness experience victimization and segregation; learn institutional behaviors; lose contact with their families and community mental health treatment providers; and lose their housing, income, and insurance. They usually receive basic mental health services during incarceration, but the lack of discharge planning has harmful consequences for the former inmate and the community. Recommended actions to address these issues include: (1) establishing diversion mechanisms, (2) creating a continuum of care for people with mental illness as they move between the criminal justice system and the community, and (3) developing comprehensive discharge planning and components for social reintegration. Footnotes and glossary