OBJECTIVE In recognition of a service gap between hospital inpatient and community-based care, a range of mental health services have been developed to provide treatment and support for people with mental illness outside the inpatient setting. Acute and subacute residential services provide care for individuals experiencing episodes of acute mental illness and provide transitional services to assist people in their reintegration into the community. This article provides a systematic review of studies evaluating the effectiveness of these alternative services. METHODS A systematic review of the literature was conducted by searching MEDLINE, PsycINFO, CINAHL, and Cochrane with no years specified to identify studies that have evaluated the clinical effectiveness, user satisfaction, or cost-effectiveness of acute or subacute residential treatments. Outcome data were extracted from quantitative studies, and themes relevant to service satisfaction were extracted from qualitative studies. RESULTS A total of 26 studies were identified that evaluated the effectiveness of acute or subacute residential services. Most studies of acute residential units demonstrated clinical improvements equal to those of inpatient units and similar readmission rates, as well as cost benefits. User satisfaction was generally higher for clients of acute residential units. Only three studies examined subacute units, a number not sufficient to evaluate the effectiveness of these services. CONCLUSIONS Acute residential mental health services offer treatment outcomes equivalent to those of inpatient units, with users reporting high satisfaction. Acute residential services offer a cost-effective alternative to inpatient services. Further research is needed to determine client groups that will benefit most from these alternative services.