Although group homes for adults labeled mentally ill have been the focus of significant attention in deinstitutionalization discussions, substantive research on their operation has been lacking. The present study addresses past limitations by focusing on a well-defined sample of small group homes, with higher staffing levels and in-home treatment provided. Thirty homes were randomly selected; all home residents (N = 253) were studied. Data were collected from case managers, residents, and home staff to assess residents' functioning, services and treatments provided, and the environment of the home. The findings were examined in terms of adequacy and appropriateness of care provided in the home, using accepted guidelines. The results indicated that there are aspects of a homelike environment, emotional support from staff, and skill-development activities within the home. However, an institutional focus still seems prevalent, along with limited rehabilitation and socialization activities. Residents expressed high levels of satisfaction, which may reflect their dislike of the group home alternative, e.g., the state hospital. Policy implications are discussed vis-a-vis current efforts to move away from group homes toward supported housing initiatives.