All social workers in America are keenly aware of the continuing thrust towards de-institutionalizalion. They are equally familiar with the promotion of the community's responsibility for the so-called deviant populations in our society. Many may not be so aware, however, of a paradoxical trend that is occurring simultaneously. The use made by these populations of a great variety of residential facilities is on the increase. Nevertheless, indications are that these facilities are being used differently to achieve quite different aims now than in the past. For example, periods of admission to institutions are shorter and more frequent. Temporary admissions for many are often arranged to give some relief to their family members or other caregivers. Further, two different types of institutionalized populations are emerging as: (a) those who become socialized to the institution because of repeated or long-term admissions, and (b) those who become dependent on the institutions almost immediately upon their admission to it. Thus, if institutions are to become more than merely custodial services, these trends forecast the need for a more differentiated practice by the social workers who work in them (Anthony & Farkas, 1982; Mercier, 1986; Toews & Barnes, 1986). This paper asserts that group practice with individuals residing in institutions contributes significantly to the constructive use they make of institutional services. Not only does the group provide a therapeutic milieu to its members for the resolution of psychosocial problems through interactions within the group. The group is also a powerful influence on the institutional environment of the group, as well as on the external community of each of its individual members. It is further contended that there are special competencies inherent in this kind of practice with groups whose members reside in institutions. Thus the impact of institutional services on members and staff is explored in order to identify the salient practice issues. In the light of these issues the external influence of the group is conceptualized. This conceptualization is then tested against the realities of practice with groups in two contrasting institutional contexts.