The purpose of this study was to delineate differences in inpatient service utilization and functional and subjective outcomes between veterans with a serious mental illness (SMI) and those with co-occurring serious mental illnesses and substance abuse (SA) disorders. This study assessed 2-year inpatient utilization and outcomes for 682 SMI veterans enrolled in specialized psychosocial treatment programs which did not have a substance abuse focus. Outcomes included psychiatric symptomatology, impairment in activities of daily living, global life satisfaction, days of hospitalization per year, and number of hospital admissions per year. Of the 682 patients, 198 (29%) had secondary diagnoses of substance abuse/dependence. Patients with co-occurring serious mental illness and substance use disorders had significantly more inpatient admissions per year than other SMI patients but did not differ in cumulative inpatient stays. The SMI/SA patients improved more than the other patients in terms of clinician rating of Global Assessment of Functioning. Patients with SMI/SA had significantly fewer psychiatric symptoms on the Brief Psychiatric Rating Scale, and all patients showed improvement on the BPRS, instrumental activities of daily living, and general life satisfaction rating. Seriously mentally ill patients with co-occurring substance use disorders fared as well as other SMI patients when enrolled in intensive, specialized state-of-the-art treatment programs.