Little is known about how to provide effective rehabilitation and health management services to older persons with serious mental illness (SMI) to decrease the use of high-cost institution-based services. To address this need, we developed a supported rehabilitation and health management (SR/HM) intervention for older persons with SMI that addresses functioning in two areas essential for preventing hospitalizations and long-term institutional care: (1) enhanced independent living skills and (2) improved health management. The supported rehabilitation (SR) component consists of skills training aimed at improving competence in everyday functioning, including community living skills and social skills. The health management (HM) component consists of training in health management skills and health case management by nurses who monitor and facilitate routine preventive and acute health care. Results from a pilot study indicate that SR/HM is effective in improving independent living skills and health management for older persons with SMI.