While partial hospitalization as a treatment modality has existed since the 1930s it has only recently begun to gain widespread attention. The attempts at defining partial hospitalization are traced to the current standards and guidelines. The authors review studies of efficacy and cost-effectiveness and find that partial hospitalization almost invariably compares favorably with inpatient treatment. There are a number of factors militating against increased use of the modality, including haziness in the definitions of goals and target populations, prejudice among clinicians and patients, institutions' resistance to relinquishing beds, and difficulty in establishing third-party reimbursement. The state of the art in partial hospitalization is an attempt to translate face-value validity into an acceptable and fundable alternative to inpatient treatment. The authors conclude that, despite the relatively small growth of programs nationwide and the reluctance of third-party payers to reimburse for the modality, partial hospitalization has an enduring role as a treatment modality.