Trauma-informed approaches offer a new perspective for understanding how and why individuals with serious mental illness (SMI) become entangled in the criminal justice system. There is growing awareness that many individuals with SMI have experienced significant life trauma, and factors beyond SMI that contribute to criminalization are being identified; however, the role of trauma continues to be overlooked in many formulations. In trauma-blind systems, trauma-related behaviors are often misunderstood and met with responses that exacerbate psychiatric and behavioral problems. Trauma-informed approaches provide a richer understanding of underlying drivers of behavior, and view trauma as an integral component of risk management, case formulation, relationship-based care, and referral. Embedding trauma-informed principles across organizations promotes continuity of care, safety, and more compassionate cultures that help reduce the flow of individuals with SMI into the criminal justice system. An expanded view of the criminalization hypothesis is offered, which incorporates all factors addressed in current research.