Estimates suggest that most children placed in state custody have mental or behavioral health problems. Many of these children are difficult to place with foster families and ultimately are referred for residential care. Residential care is expensive relative to other alternatives and the effects on child outcomes do not seem to justify the expense. This study identifies systemic factors contributing to the residential placement of young children and opportunities for service improvement in a rural state. Key informant interviews and surveys were used to synthesize a broad array of professional perspectives. Remarkable consensus across multiple groups suggests that young children are best served in a family setting. Strategies to reduce residential placement and improve outcomes of young children are discussed.