Both direct placement in supported community housing and pretreatment with time-limited residential treatment are used as approaches to helping chronically homeless adults exit from homelessness, but relative effectiveness and cost remains untested. The current observational study utilized data from a national, multisite housing project to determine whether clients who receive residential treatment or transitional housing before being placed into independent housing achieve superior outcomes than clients who are immediately placed into independent housing, and whether they incur greater health care costs. A total of 709 participants (131 and 578 participants in the respective groups) were assessed every 3 months for 2 years on housing outcomes, community adjustment, work and income, mental and physical health, and health service costs. Clients who received immediate, independent housing had more days in their own place, less days incarcerated, and reported having more choice over treatment, but no differences on other clinical or community adjustment outcomes. In this observational study, there were no clinical advantages for clients who had residential treatment or transitional housing prior to entry into community housing, but they incurred higher substance abuse service costs. Studies using randomized controlled trials of these conditions are needed to establish causation. (PsycINFO Database Record (c) 2010 APA, all rights reserved)