This paper describes the conversion of partial hospitals into recovery-oriented programs as part of system transformation. Steps included: participatory planning with stakeholders; strength based assessment of resources and needs; technical assistance; and changing funding strategies. Over a period of 8 years, use of partial hospitals decreased as persons with serious mental illnesses were transitioned to community integrated recovery centers. Preliminary outcomes suggest that these programs are more effective in engaging people in the community activities of their choice, confirming previous findings that showed that partial hospitals can be converted to recovery-oriented programs that focus more directly on promoting community inclusion.