Implementing services that control costs and improve client functioning for persons with both severe psychiatric and substance disorders is paramount in a managed care environment. In this clinical trial, standard mental health care augmented by the behavioral skills intervention was more effective than two other approaches (case management and modified 12-step recovery) in interventions with persons with dual diagnoses across indicators of psychosocial adjustment, psychiatric and substance abuse symptoms, and mental health service costs. These findings reinforce the need to address mental health and substance disorders concomitantly; to provide skill-building interventions as the primary ingredient of active treatment to address various instrumental, coping, and social skill deficits that clients with dual diagnoses have; and to monitor the effectiveness of the services and client progress every six months on multiple adjustment and symptomatology dimensions.