This paper addresses the effects of chronic poverty on people with serious mental illness. More specifically, we are concerned with the extent to which welfare restructuring, by deepening the poverty facing people with serious mental illness, undermines the expressed intent of mental health policy to improve the quality of life (QOL) of this population. The province of Ontario in Canada forms the setting for the study. The paper first examines recent trends in mental health care and social assistance policy in Ontario. While income support is consistently recognized as a core element of mental health care, welfare restructuring has led to a significant decline in the real value of income supports received by people with serious mental illness. The paper then examines the implications of this trend for the QOL of residential care facility tenants in Hamilton, Ontario. Here, the case study is explicitly connected to QOL scholarship. In addition, the study is grounded in an analysis of the broader transformation of the welfare state in Ontario. Interview data suggest that tenants experience chronic poverty that has a deleterious impact on multiple life domains including basic needs, family, social relations, leisure and self-esteem. Implications for research and policy are discussed.