Japanese psychiatric services are still typically hospital-based. The Sasagawa Project is the first systematized deinstitutionalization project in Japan that aims to make the transition from hospital to residential living while ensuring both the quality and continuity of care for the patients. Seventy-eight (51 males) patients (mean age 54.6) with chronic schizophrenia, who were considered appropriate for discharge received continuous cognitive behavioural therapies based on the Optimal Treatment Project manualised protocol, both before and after the hospital closure. During the first 12 months after the deinstitutionalisation was initiated on April 1st, 2002, ten people had incidents that interrupted their stay in the residential Sasagawa Village. A common criticism of many treatment outcome trials is that evaluation is focused on changes in clinical severity. In the Sasagawa project the transition appeared to have been smooth and relatively few incidents occurred could be related to the transition to a less intensive residential care. This project might be a useful model for effecting and monitoring transition from hospital to community care in Japan and other countries where such changes have been proposed.