Two projects were established to help elderly people with mental health problems move from continuing care hospital wards to local authority residential care homes. The projects were part of a larger programme established in the 1980s to test new policy and practice options. Each hospital resident was interviewed and assessed prior to commencing any programme of activities designed to prepare them for resettlement in the community. Data came from hospital patients themselves, from staff and from interviewer observations. Most of the people who moved from hospital were reinterviewed and reassessed approximately 9 months after discharge. The evaluation revealed that quality of life in residential homes was certainly not inferior to hospital but was less expensive. The residential homes offered more lively and psychologically pleasing environments than hospital. Residents' levels of participation were higher according to staff, and residents had more social contacts. The quality of social contacts also appeared to improve. The two projects thus provided a cost-effective alternative to hospital for elderly people with mental health problems