OBJECTIVE: The study examined economic disincentives and incentives to work among people with serious mental illness. METHODS: Fifty people with severe and persistent mental illness who were living in the community were interviewed about the amount and sources of their income and expenses. In addition, a randomly selected group of 100 people with schizophrenia or schizoaffective disorder was interviewed about work, income, and wage requirements. RESULTS: In the first sample, the mean total cash and noncash income of unemployed subjects ($929 a month), which was derived mainly from disability supports and rent subsidies, was only slightly lower than that of subjects with part-time employment ($1,028 a month). The limited difference was largely a consequence of reductions in entitlement income when subjects worked. To overcome these disincentives, most subjects in the second sample felt they needed to earn between $5 and $6 an hour to make working worthwhile. The mean monthly cost of psychiatric treatment for unemployed subjects was $2,083, compared with $910 for those with part-time employment and $292 for those working full time. CONCLUSIONS: The findings emphasize the importance of developing higher-paying jobs for this population and reforming entitlement programs to incorporate work incentives for the mentally disabled population.