We develop a novel deformable atlas method for multistructure segmentation that seamlessly combines the advantages of image-based and atlas-based methods. The method formulates a probabilistic framework that combines prior anatomical knowledge with image-based cues that are specific to the subject's anatomy, and solves it using expectation-maximization method. It improves the segmentation over conventional label fusion methods especially around the structure boundaries, and is robust to large anatomical variation. The proposed method was applied to segment multiple structures in both normal and diseased brains and was shown to significantly improve results especially in diseased brains.