A variety of treatment, rehabilitation and support options assist people with serious mental illness (SMI) in their pursuit of recovery. Psychiatric/psychosocial rehabilitation (PSR) is an effective means to assist individuals with SMI achieve recovery, including successful community living. Housing is an important part of such community living. This paper addresses the role of PSR (skills training and environmental supports) in relation to residential environments of people with SMI. <i>Method: </i> A systematic narrative review of the research literature was conducted to explore the role of PSR in relation to housing, including homelessness, supportive/supported housing and independent living. Factors supporting adaptive psychosocial functioning and thus contributing to housing stability and community integration were also considered. <i>Results: </i> PSR interventions that focus on enhancement of independent living and social skills promote greater social role functioning and engagement with community. Individualized approaches, respect for client preference and use of empowering strategies to engage with clients as equal partners in decision-making processes have similar relevance and importance. Other factors influencing housing stability include continuity of supports, safety, and presence (or lack of it) of neighborhood stigma toward people with SMI. <i>Conclusion:</i> Successful community integration and achievement of housing stability for individuals with SMI is dependent upon achieving balance in terms of adequacy and flexibility of informal and formal mental health supports and attainment of desired socio-environmental conditions. PSR is an important component of mental health services and of housing-related supports for people with SMI.