Reviewed is the movement toward deinstitutionalization of handicapped children in terms of the sources of pressures toward deinstitutionalization, alternatives, effects of institutional experience on children, and possible consequences of the movement. Pressures discussed are those deriving from the assumed negative effects of institutionalization on children and those deriving from social reform actions and movements (litigation, legislation, and citizen pressures). Alternative options mentioned are the following: shorten length of stay in institutions, cut down referrals for admissions, develop a phase out plan, and move toward a highly differentiated system of institutions. Commentary is cited on the present knowledge concerning effects of the institutional experience on children in such areas as dehumanization, treatment effects, effects of institutional structure and placement process, effects of geographic distance, and costs of institutional care. The following service alternatives are considered: foster family care, group home care, community-based services, and strengthening family life. Some possible unintended consequences are discussed. Concluding assessments include the following recommendations: a sound rationale for deinstitutionalization--the rights of children; public airing of any plan for deinstitutionalization and demonstration of a relationship with State services; feasibility of absorption of the population; and gradual implementation of the plan. A bibliography of approximately 325 publications is provided. (IM)