Although the elderly's need for psychiatric treatment has long been recognized, publicly funded community mental health centers generally have been unsuccessful in establishing geriatric programs. If properly used, state mental hospitals remain a potential resource, but the more appropriate community-based placemcnt of mentally impaired elderly persons is in special psychiatric units of general hospitals or in geropsychiatric units of private psychiatric hospitals. Principles for establishing such units in either setting include organizing a treatment team that empathizes with older patients and that has been trained to deal with the complex problems of the elderly. Formulation of comprehensive diagnoses and prognoses may require consultation and facilities outside the hospital; treatment planning should involve the patient's family from the beginning. Follow-up and supervision of referral after the patient's discharge are essential to the program's success.