OBJECTIVE: The study sought to determine whether inpatient readmission rates differed for patients with substance use disorders who were treated in either hospital-based or community-based transitional residential care. Length of residential care and intensity of outpatient mental health aftercare were examined as predictors of readmission. METHODS: Department of Veterans Affairs nationwide databases were used to document readmissions at one- and two-year intervals for male inpatients treated for substance use disorders who were discharged either to hospital-based (N = 2,190) or community-based (N = 4,490) residential care. Patients with and without concomitant psychiatric diagnoses were identified. RESULTS: Patients treated in community-based residential programs had lower one- and two-year readmission rates than patients who received hospital-based residential care. Longer episodes of residential care and more outpatient mental health care were also associated with lower readmission rates. Among patients with concomitant psychiatric disorders, those in hospital- based care benefited more from longer episodes of residential care and more intensive outpatient mental health aftercare. Residential care, longer episodes of care, and more outpatient mental health care were independent predictors of lower one- and two-year readmission rates after patient-based risk factors were controlled. CONCLUSIONS: The findings highlight the value of providing adequate amounts of residential and outpatient care for patients in substance abuse treatment, especially patients with concomitant psychiatric disorders.