Italy's mental health law of 1978 mandated the closing of state mental hospitals to new and former patients and the creation of comprehensive community-based service systems. The authors describe the organization, facilities and services, and treatment principles of one system created in accordance with the law--the South Verona Community Psychiatric Service, which serves a population of 75,000. Case register data for South Verona for the years 1978 to 1984 reflect the changes mandated by the law. They also indicate that despite an increase in admissions to the psychiatric ward in the general hospital following the closing of the state hospital, there was a substantial overall decrease in the number of hospital beds occupied per day by South Verona residents after passage of the law, and that a substantial proportion of patients with functional psychosis were able to be treated as outpatients.