Individuals with severe mental illness have long been segregated from living in communities and participating in socio- cultural life. In recent years, owing to progressive legislations and declarations (in India and globally), there has been a growing movement towards promoting social inclusion and community participation, with emphasis on the need to develop alternative and inclusive care paradigms for persons with severe mental illness. However, transitions from inpatient care to community settings is a complex process involving implications at multiple levels involving diverse stakeholders such as mental health service users, care providers, local communities and policy makers. This article studies how the transition from a hospital setting to a community-based recovery model for personals with severe mental illness can be facilitated. It reflects on the innovative process of creating a Supported Housing model in South India, where 11 MH Service users transitioned from a psychiatric ECRC to independent living facilities. Experiences in various phases of the project development, including care provider- and community level responses and feedback were scrutinised to understand the strategies that were employed in enabling the transition. Qualitative methods (including in-depth interviews and naturalistic observations) were used with residents and staff members to explore the challenges they encountered in stabilizing the model, as well as the psychosocial benefits experienced by residents in the last phase. These were complemented with a Brief Psychiatric Rating Scale (BPRS) and WHO Quality of Life scale to compare baseline and post-assessment results and an increase of quality of life. Results display a significant reduction of psychiatric symptoms in patients (p< 0.5). It also describes the challenges encountered in the current context, and strategies that were used to respond and adapt the model to address these concerns effectively. Positive behavioural and psychoemotional changes were observed amongst the residents, significant amongst those being enhanced in their mobility and participation. The article concludes by discussing the implications of this study for the development of innovative community-based models in wider contexts.