This paper examines how implementation of the Adoption and Safe Families Act (ASFA) may affect families in which a parent has a mental illness. We present evidence that such parents may suffer discrimination when the psychiatric diagnosis alone leads to an assumption of risk in lieu of a more complete assessment of a parent’s behavior or parental competence. We argue that decisions about child placement, custody, or termination of parental rights should never be based solely on a diagnostic label or on assumptions about the possible ramifications of a parent’s mental illness. Instead, parents with mental illnesses and their families deserve a thorough assessment that takes into account all dimensions of parent and family functioning and needs, and thus can better inform service planning and/or legal proceedings. Further, if it is determined that a parent’s mental illness, compounded by inadequate services and supports, does compromise his or her functioning as a caregiver, then those resources should be provided and accessible as a part of “reasonable efforts.” The goals of child safety and child well-being should always remain paramount, but we must also bear in mind that separating children from their parents and transferring responsibility for their lives to multiple caregivers in the foster care system can often be traumatic and not in their best interests. We offer recommendations for professional training and for innovations in policy, practice, and research that will improve the implementation of ASFA and reduce the likelihood of negative impact on children and families coping with parental mental illness.