The decision to move a family member with dementia to a nursing home is a difficult experience for caregivers. Complex psychosocial factors are involved and knowledge of predictive factors alone is insufficient. Using grounded theory, this study explores the decision-making process with regards to institutionalization, from the perspective of family caregivers. Fourteen people who moved a relative to long-term care in the preceding 6 months were interviewed. Data analysis using comparative analysis and line-by-line dimensional analysis was used to develop a theoretical model of the decision-making process. Three factors within the model were central to the process: (a) caregivers' perceptions of their ability to provide care, (b) caregivers' evaluations of their relatives' ability to make care decisions, and (c) the evolving influence of contextual factors and interactions with healthcare professionals. The contribution of these findings to new conceptualizations of institutionalization is discussed.