BACKGROUND: In the context of deinstitutionalization of psychiatric services, Community Care Units (CCUs) were developed to provide accommodation, clinical care and rehabilitation for patients discharged from the long-stay open wards of a large psychiatric hospital that was in the process of closing. CCUs are 20-bed units built in suburban locations and staffed on a 24-h basis by multidisciplinary clinical teams. METHOD: An initial group of 125 hospital patients was assessed at 1 month pre-move, 1 month post-move, and again at 1 year, on range of measures covering clinical status, personal functioning, quality of life, residential preferences, aggressive behaviour, and social networks. Staff attitudes, relative and carer perceptions and preferences, and residential environments were also assessed. RESULTS: Most of the transferred patients were still resident in their CCU at 1 year. The clearest result was that patients showed improved quality of life in relation to their living environment. Comparison of the hospital and CCU environments showed that the latter were significantly less restrictive and regimented. Most relatives and carers also preferred the CCU. On average, symptom and disability levels were little changed at 1 year. CONCLUSIONS: Our results suggest that the CCU is an appropriate form of service delivery for most long-stay hospital inpatients, but that both more and less supervised settings are also required. While symptoms and disability were little changed at 1 year, it is possible that further follow-up may detect delayed or slow changes. Given the widespread replacement of psychiatric hospitals with community-based services, the future role of the CCU needs to be reviewed.