This article presents an ethical analysis of the important issues surrounding the involuntary institutionalization of people who are homeless and mentally ill (HMI) in the United States. The legal, economic, and moral implications of state-sponsored involuntary institutionalization of people who are HMI are considered. An ethical decision-making model is used as an analytical tool to evaluate ethical concerns associated with involuntary institutionalization. Legal rights of the HMI are examined at the federal, state, and local levels. The broad social implications of involuntary institutionalization are addressed, as well as individual therapeutic ethics. The article concludes with recommendations for public policy decision-makers and counsellors working with people who are homeless and mentally ill.