Nidotherapy is the systematic modification of the environment to create a better fit for people. This is the first randomized controlled trial of its efficacy in an assertive community team. Patients in an assertive outreach team with continued management problems together with comorbid personality disturbance and severe mental illness were randomized to nidotherapy enhanced assertive treatment (up to 12 sessions) or to continued assertive outreach care. Use of psychiatric beds over one years (primary outcome) and change from base-line in other health service resources, psychiatric symptoms, social functioning and engagement with services were measured at 6 and 12 months (secondary outcomes). 52 patients were recruited over 13 months, with 49 and 37 assessed at 6 and 12 months. Patients referred to nidotherapy had a 63% reduction in hospital bed use after one year compared with control assertive care (P = 0.13) and showed non-significant improvement in psychiatric symptoms, social functioning and engagement than the control group. The mean cost savings for each patient allocated to nidotherapy was 4,112 pounds sterling per year, mainly as a consequence of reduced psychiatric bed use. Nidotherapy may be a cost-effective option in the management of comorbid serious mental illness and personality disorder, but larger confirmatory trials are necessary.