That public policy has abysmally failed the chronically mentally ill seems beyond genuine dispute. Successive reforms have foundered on the familiar shoals of overblown expectations and insufficient resources. In this paper, we review current policies affecting the chronic and disabled mentally ill, and we consider some approaches to reform. We begin by trying to identify and characterize the chronically mentally ill and their disabilities. Next, we consider the chaotic patchwork of federal and state programs that has come to replace the asylum. We then criticize several competing models of reform that we believe fail to make an empathic connection with the mentally ill. Finally, we urge a strategy of limited reform consistent with available empirical data about program effectiveness and sensitive to the likely economic, political, and legal constraints of the 1990s.