Residential treatment programs serve troubled youth who tend to first fail in other treatment programs. Residential treatment is often regarded as a treatment of ‘last resorts.’ A review of available studies of the effectiveness of residential treatment delivered in group home settings and residential treatment centres concludes that, despite methodological shortcomings and variability in programming, residential services do improve functioning for some, but not all, youth. However, gains made during treatment are not easily maintained and tend to dissipate over time. The level of family involvement in treatment is generally regarded as predictive of posttreatment patterns of adjustment. Successful posttreatment patterns of adjustment also depend on posttreatment environmental factors such as available support and residential stability. Continued long-term followup of youth in residential treatment is critical to our understanding of the types of individuals for whom residential settings are a particularly good match.