The major impetus for health care reform clearly seems to be the desire to contain the cost of health care. One of the major cost‐containment methods proposed is capitation. Capitation poses specific problems when applied to mental health services delivery. This article discusses several of the major issues pertaining to the utility of capitation in mental health, discusses on‐going capitation efforts, and provides an evaluation of capitation programs. Future directions for research on capitation in mental health are then suggested.