Youth with serious mental illness come into contact with juvenile justice more than 3 times as often as other youth, obliging communities to expend substantial resources on adjudicating and incarcerating many who, with proper treatment, could remain in the community for a fraction of the cost. Incarceration is relatively ineffective at remediating behaviors associated with untreated serious mental illness and may worsen some youths' symptoms and long-term prognoses. Systems of care represent a useful model for creating systems change to reduce incarceration of these youth. This paper identifies the systemic factors that contribute to the inappropriate incarceration of youth with serious mental illness, including those who have committed non-violent offenses or were detained due to lack of available treatment. It describes the progress of on-going efforts to address this problem including wraparound and diversion programs and others utilizing elements of systems of care. The utility of systems of care principles for increasing access to community-based mental health care for youth with serious mental illness is illustrated and a number of recommendations for developing collaborations with juvenile justice to further reduce the inappropriate incarceration of these youth are offered.