Background: A proportion of people with mental health problems require longer term care in a psychiatric or social care institution. However, there are no internationally agreed quality standards for institutional care and no method to assess common care standards across countries. We aimed to identify the key components of institutional care for people with longer term mental health problems and the effectiveness of these components. Methods: We undertook a systematic review of the literature using comprehensive search terms in 11 electronic databases and identified 12,182 titles. We viewed 550 abstracts, reviewed 223 papers and included 110 of these. A "critical interpretative synthesis" of the evidence was used to identify domains of institutional care that are key to service users' recovery. Results: We identified eight domains of institutional care that were key to service users' recovery: living conditions; interventions for schizophrenia; physical health; restraint and seclusion; staff training and support; therapeutic relationship; autonomy and service user involvement; and clinical governance. Evidence was strongest for specific interventions for the treatment of schizophrenia (family psychoeducation, cognitive behavioural therapy (CBT) and vocational rehabilitation). Conclusion: Institutions should, ideally, be community based, operate a flexible regime, maintain a low density of residents and maximise residents' privacy. For service users with a diagnosis of schizophrenia, specific interventions (CBT, family interventions involving psychoeducation, and supported employment) should be provided through integrated programmes. Restraint and seclusion should be avoided wherever possible and staff should have adequate training in de-escalation techniques. Regular staff supervision should be provided and this should support service user involvement in decision making and positive therapeutic relationships between staff and service users. There should be clear lines of clinical governance that ensure adherence to evidence-based guidelines and attention should be paid to service users' physical health through regular screening.