There are about 200,000 homeless persons in Germany, 35,000 of them living on the streets. They suffer from unemployment, poverty, social isolation and physical impairments. More than two-thirds of them suffer from mental illness as well. Substance abuse predominates, but also schizophrenic and affective disorders and personality disorders show a higher prevalence than among the general population. Comorbidity is found frequently. However, mental disorders are just one of several factors contributing to the process of becoming homeless. Due to the complex combination of mental, physical, social and economic problems of the homeless mentally ill psychiatric care is not sufficient. Yet recent US studies show that a combination of multimodal clinical measures and a network of outpatient assistance can improve both physical and mental health and the social situation. Having established reliable epidemiological data, future research should concentrate on analysing the influence of homelessness on mental health, and on planning and evaluating specific programmes for the homeless mentally ill.