Objective: In 2009, the Departments of Psychiatry and Telehealth of the University of KwaZulu-Natal (UKZN) initiated a three year project to develop telepsychiatry services in KwaZulu-Natal. This paper describes the challenges and opportunities of this project. Method: This was a collaborative, in situ health service project and an action research framework was adopted. Over the three years, following a needs assessment and an e-health Readiness Assessment, two action research cycles were completed. Cycle 1: The preparation, implementation and evaluation of educational material, technical requirements and clinical guidelines and clinical support materials. Cycle 2: Preparation and evaluation of educational and clinical outreach sessions. Results: Videoconference education sessions were beneficial to health staff without post-qualification psychiatry training. A flexible format for education improved knowledge outcomes. Clinical sessions are feasible, but require administration and technical support for facilitation. With facilitator training, 128Kbps is a suitable bandwidth for education but 384Kbps is preferred for clinical consultation. Conclusion: Telepsychiatry offers tremendous potential to facilitate the three strategies suggested by the World Psychiatric Association to address the treatment gap, save time and costs and improve access to the small pool of specialist psychiatrists in resource constrained environments.