After the developments in mental health services in the UK in the last 40 years there has been an increasing focus on identifying and targeting the needs of the severely mentally ill (SMI). Political concern about the possible risks of community care have resulted in an emphasis on administrative and legal means of ensuring continuity of care and close clinical supervision of this SMI group. A number of experimental community-oriented mental health services have been shown to be cost-effective compared to hospital-based treatment. The further development of comprehensive community mental health services will depend on demonstrating whether this can be generalised to routine clinical settings. In this context we shall present the design of the PRiSM study, a prospective controlled trial of the cost-effectiveness of community mental health teams for the SMI in South London.