Background. The Daily Living Programme (DLP) offered problem-oriented, home-based care for people aged 17-64 with severe mental illness facing emergency admission to the Bethlem-Maudsley Hospital. The multidisciplinary DLP team acted as direct provider and link with other services. Each patient had a key worker. Cost-effectiveness was assessed. Method. The comprehensive costs of DLP and standard in-patient care were compared within a randomised controlled trial. Cost measures ranged over all service inputs and living expenses. The costs of informal care and lost employment were also considered. Assessments Of service use, costs and outcomes were conducted at referral, 4, 11 and 20 months. Results. The DLP was significantly less costly than standard treatment in both short and medium term (P=0.000). Cost savings accrued almost exclusively to the NHS, with no other agency's costs being higher. Conclusions. Coupled with mildly encouraging outcome results over the 20 month period, the DLP was clearly cost-effective in this medium term.