In the UK, psychiatric care of patients with acute and chronic disorders has increasingly moved from hospital to the community. We have evaluated in a controlled trial patients with severe mental illness, who were assigned to early intervention by community services or to standard hospital treatment. 100 patients aged 16 to 65 years presenting as psychiatric emergencies to an inner London teaching hospital were randomly allocated to a multidisciplinary community-based team (n = 48) or conventional hospital-based psychiatric services (n = 52) and assessed over a 3-month period. Ratings of psychopathology and social functioning were made before treatment and after 2, 4, and 12 weeks by independent assessors. 85 patients completed all assessments, and all patients had evaluable data beyond 2 weeks. 3 patients died during the study, 2 from natural causes and 1 from an accident. Patients referred to the community service showed greater improvement in symptoms and were more satisfied with services than those in the hospital-based service. Patients treated in the hospital-based service spent eight times as many days as psychiatric inpatients as those treated in the community-based service. Patients both prefer and seem to benefit from community-based psychiatric care, and our early-intervention community service might be a good model for such care.