This study evaluated the impact of a Department of Veterans Affairs outreach and residential treatment program for homeless mentally ill veterans on utilization and cost of health care services provided by the VA. Methods: Veterans at nine program sites (N= 1,748) were assessed with a standard intake instrument. Services provided by the outreach program were documented in quarterly clinical reports and in residential treatment discharge summaries. Data on nonprogram VA health service utilization and health care costs were obtained from national VA data bases. Changes in use of services and cost of services from the year before initial contact with the program to the year after were analyzed by t test. Multivariate analyses were used to examine the relationship of these changes to indicators of clinical need and to participation in the outreach program. Results: Although utilization of inpatient service did not increase after veterans' initial contact with the program, use of domiciliary and outpatient services increased substantially. Total annual costs to the VA also increased by 35 percent, from $6,414 to $8,699 per veteran per year. Both clinical need and participation in the program were associated with increased use of health services and increased cost. Veterans with concomitant psychiatric and substance abuse problems used f ewer health care services than others. Conclusions. Specialized programs to improve the access of homeless mentally ill persons to health care services appear to be effective, but costly. Dually diagnosed persons seem especially difficult to engage in treatment.