Due to the high prevalence of challenging behaviours on acute psychiatric wards, there is a need for more therapeutic interventions that utilize psychological theory to support staff and patients. This study assessed feasibility, effectiveness and mechanisms of multidisciplinary team case formulation to reduce challenging behaviours of patients. This was a cohort study with a pre‐ and post‐formulation analysis of patients from five acute wards. Structured team case formulation sessions were held using an integrative psychological model incorporating cognitive behavioural principles and the Newcastle model. Staff attendance and fidelity to formulation components were recorded. Frequency of staff-rated challenging behaviours and the frequency of incidents of violence and self‐harm pre‐ and one‐week post‐formulation were assessed. To test mechanisms, changes in staff perceptions of the overall frequency of challenging behaviours and the number of incidents of violence and self‐harm were compared to the number of strategies identified, the number of strategies implemented, and the number of staff present. Participants (N = 50) had a range of serious mental health conditions, including 50% with F20???F29 schizophrenia, schizotypal and delusional disorder. Fidelity to formulation model components was found to be high. There was a significant decrease in staff perception of the frequency of patients’ challenging behaviours, with large effect sizes. There was strong evidence of a reduction in the number of violent incidents and self‐harm post‐case formulation. None of the mechanism tests were significant. Case formulation sessions appear to be a feasible and effective intervention to reduce challenging behaviours within acute inpatient care.