The purpose of the paper is to discuss the formidable challenges to community reentry and reintegration faced by U.S. prison inmates with serious mental illness and to describe various strategies for improving transitional services for these individuals. We review epidemiologic data supporting the high prevalence of severe mental illness in U.S. prisons as well as the historical factors underlying the criminalization of the mentally ill. The importance and challenges of providing adequate psychiatric care for mentally ill prisoners during their incarceration are discussed. We also review the numerous psychosocial and economic challenges confronting these individuals upon their release from prison, such as unemployment and vulnerability to homelessness, as well as specific barriers they may encounter in attempting to access community-based mental health services. We follow with a discussion of some of the more promising strategies for improving the transition of the mentally ill from prison to the community. In the final sections, we review the evidence for a relationship between serious mental illness and recidivism and briefly discuss emerging alternatives to incarceration of the mentally ill.