Successive UK governments have pursued a policy of community care for people with learning disabilities which, in the past ten years, has led to a marked change in the nature of residential provision. Research evidence on the costs and quality of alternative forms of community provision is inconclusive and contradictory. It is therefore timely to consider whether or not community residential facilities have delivered the expected quality of service at appropriate cost. The paper presents the results of a cost function analysis of a random stratified sample of staffed community facilities in England excluding London. Both costs and quality of care were found to vary greatly amongst community residential facilities. The most important factors explaining differences in cost were case-mix factors relating to client age, dependency and length of stay. Facility characteristics such as the type of building, the internal layout and the structural quality were not significant. Quality of service measures such as the extent to which care-regimes were client orientated and made use of local community services were positively and significantly associated with costs. Type of provider had no impact on costs independent of differences in case-mix and quality of care with the exception of the private for profit sector which appeared less expensive than other agencies. The shortcomings of the methods and implications of these findings for policy makers are discussed.