Recent innovations in the treatment of schizophrenia reflect a growing trend towards community-based care. Malaysia had in the past few years attempted to deinstitutionalise mental patients in the mental hospitals. Therefore it is important to conduct research to compare the two groups of schizophrenia patients (community-based patients against chronic hospitalised patients) to ascertain if deinstitutionalisation has been beneficial. The main objective of the study was to compare levels of depression and function in community-based patients against chronic hospitalised patients as depression is prevalent among schizophrenia patients. This study was cross sectional in nature where data was collected from 51 inpatients in Hospital Bahagia Ulu Kinta (HBUK) and 23 community-based patients. Calgary Depression Scale for Schizophrenia (CDSS) and Global Assessment of Functioning scale (GAF) were the assessment tools used. Community-based patients were found to have significantly lower scores in the CDSS scale (1.96) as compared to chronic hospitalised patients (4.04); p < 0.01). They also showed higher functional capability between community-based and hospitalised patients respectively (74.04 vs 57.92) respectively. (p < 0.001). Community services appeared to be more effective than long stay in-patient services in preventing depression and promoting better functional levels.