OBJECTIVE: The study evaluated the effects of an intensive case management model on clients' use of inpatient and outpatient psychiatric care and on the costs of care. METHODS: Ninety clients of a county mental health system who were frequent users of inpatient services were randomly assigned to either an intensive case management group, a traditional case management group, or a control group who received no particular services. Outcome variables measured over a two- year period were number of units used by clients and costs of inpatient care in county and private facilities and various types of outpatient care, including day treatment and use of an emergency psychiatric unit. RESULTS: Clients who received intensive case management had fewer inpatient days and reduced overall costs for mental health services. CONCLUSIONS: Assertive outreach and intensive case management can reduce hospitalizations of clients who are frequent users of inpatient care and can reduce overall mental health care costs. Mental health consumers employed as case management aides can play an important role in the delivery of mental health services, particularly with frequent users of inpatient care.