The author reviews the status of the state mental hospital and the chronic mental patient within the psychiatric service system and then examines the hospital's evolution from a systems perspective. She predicts that the state mental hospital will survive as an integral part of the service system, that it will be one of several loci of care for the chronic mentally ill, and that it will continue to experience financial and identity crises in the near future. She considers it essential that the state mental hospital be seen not as a facility of last resort but as one of many agencies that meet the varied needs of the chronic mentally ill.