Objectives: Comparatively few people with severe mental illness are employed despite evidence that many people within this group wish to obtain, can obtain and sustain employment, and that employment can contribute to recovery. This investigation aimed to: (i) describe the current policy and service environment within which people with severe mental illness receive employment services; (ii) identify evidence-based practices that improve employment outcomes for people with severe mental illness; (iii) determine the extent to which the current Australian policy environment is consistent with the implementation of evidence-based employment services for people with severe mental illness; and (iv) identify methods and priorities for enhancing employment services for Australians with severe mental illness through implementation of evidence-based practices. Method: Current Australian practices were identified, having reference to policy and legal documents, funding body requirements and anecdotal reports. Evidence-based employment services for people with severe mental illness were identified through examination of published reviews and the results of recent controlled trials. Results: Current policy settings support the provision of employment services for people with severe mental illness separate from clinical services. Recent studies have identified integration of clinical and employment services as a major factor in the effectiveness of employment services. This is usually achieved through co-location of employment and mental health services. Conclusions: Optimal evidence-based employment services are needed by Australians with severe mental illness. Providing optimal services is a challenge in the current policy environment. Service integration may be achieved through enhanced intersectoral links between employment and mental health service providers as well as by co-locating employment specialists within a mental health care setting.