BACKGROUND: UK service structure necessitates a transition out of youth services at a time of increased risk for the development and onset of mental disorders. Little is currently known about the mental health and psychosocial outcomes of leaving services at this time. The aim of this study was to determine predictors of mental health and social adjustment in adolescents leaving mental health or social care services. METHODS: A cohort (n = 53) of 17 year olds were interviewed and assessed when preparing to leave adolescent services and again 12 months later. Their mental health and psychosocial characteristics were compared to a same-age community sample group (n = 1074). RESULTS: At discharge 34 (64%) met DSM IV criteria for a current psychiatric diagnosis and only 3 (6%) participants met operational criteria for successful outcomes at follow-up. Impairments in mental health, lack of employment, education or training and low preparedness were associated with poor outcomes. CONCLUSIONS: The findings suggest the current organisation of mental health and care services may not be fit for purpose and even unwittingly contribute to persistent mental illness and poor psychosocial outcomes. A redesign of services should consider a model where the timing of transition does not fall at the most hazardous time for young people, but is sufficiently flexible to allow young people to move on when they are personally, socially and psychologically most able to succeed. Assessment of a young person's readiness to transition might also be useful. A youth focused service across the adolescent and early adult years may be better placed to avoid young people falling through the service gap created by poor transitional management.