Research on the merits of long-term group residences is inconclusive. The purpose of the present paper was to investigate the effects of supported group residence on the symptoms, social function, quality of life, general health quality, and the medical/psychiatric cost in Japan of a large number of psychiatric beds and long average length of stay. Patients were assessed every 6 months for 2 years using Positive and Negative Syndrome Scale, Katz Adjustment Scale, World Health Organization Quality of Life (WHO-QOL) and General Health Questionnaire 12-item version. Patients discharged to the supported group residence (SGR) significantly improved with regard to positive symptoms, the level of socially expected activities and free-time activities. The QOL physical domain of the inpatients was significantly more deteriorated compared to the SGR group. The total psychiatric/medical cost of the SGR group was approximately one-third that of the inpatient group, while the cost of the SGR to treat physical comorbidity was much higher. The present findings indicate that SGR has advantages for mental and social function but not for physical health. A major limitation of the present study was the high mean age (>60 years) of the subjects who had been hospitalized for a long period (mean, 24 years).