Placement instability is a common occurrence among foster children and others involved with child welfare system services, and is associated with negative psychiatric and mental health outcomes. The purpose of this paper is to review and synthesize research in this area and to consider this information in terms of child welfare practice and policy. Evidence from 59 sources is reviewed, including research on (a) the connection between placement instability and poor outcomes; (b) sources of information that can be employed to reliably predict risk for placement instability; and (c) interventions designed to mitigate the effects of placement instability. The available empirical evidence suggests that placement instability and other family chaos is associated with disrupted development of the brain’s prefrontal cortex, which is involved in executive functioning. Poor executive functioning is implicated in elevated risk for ADHD, disruptive behavior disorders, substance abuse, and other forms of disinhibitory psychopathology. This might help to explain the high rates of psychiatric medication prescriptions for foster children. Notably, however, recent research findings have shown that placement instability is both predictable and preventable and that interventions to address placement instability have the potential to mitigate neurobiological and psychiatric effects of prior adversity.