Occupational therapy emerged as a health profession in Australia at a time when thousands of people with mental illness lived behind high walls, devoid of normal routines and activities. Detailed analysis of texts of practice, images and stories are used in this study to illustrate the dynamic link between practice environments and the knowledge of occupational therapy that aimed to confront the problems of institutional living. Occupational therapists implemented craft-based practice within psychiatric institutions of the 1940s and 1950s. Through two decades, occupational therapists aligned their practice with medical paradigms before returning to occupation as a core of practice knowledge. Following closure of institutions during the 1990s, occupational therapists were challenged by relocation to community-based, multidisciplinary environments. Occupation again emerged as the central concept of community living. The study concludes that occupational therapy has a quiet, yet consistent role within the changing environment of mental health practice. Gender, social views and practice environments are significant influences on the evolution of occupation as a core of practice.