Psychiatrists often give testimony as to whether an individual is mentally fit to face trial, the so-called insanity defense. Some mental health professionals dispute the right of psychiatrists and the judicial system to do this or the way in which they do it. Since the 1960s Szasz has agued that, because mental illness is an incoherent concept, the insanity defense should be abolished. Most of his colleagues do not accept this view.

While the insanity defense is the subject of controversy, as a possible excuse for wrong-doing, other critics contend that being committed in a psychiatric hospital is often much worse than criminal imprisonment, since it involves the risk of compulsory medication with neuroleptics or the use of electroshock treatment .

Psychiatry is at the forefront of the practice of mental health care in hospital wards, or other medical settings, using legally-sanctioned force to admit individuals against their will. Critics point out that this practice runs against one of the pillars of open or free societies: John Stuart Mill’s principles, as advanced in his foundational work regarding the concept of liberty. Mill argues that society should never use coercion to subdue an individual as long as he (or she) does not harm others. Involuntary psychiatric hospitalization, critics contend, violates this principle. (In contrast to the Hollywood portrait of schizophrenics, disturbed people are usually no more prone to violence than sane individuals.) The growing practice, in the United Kingdom and elsewhere, of "care in the community" was instituted partly in response to such concerns. Alternatives to involuntary hospitalization include the development of non-medical crisis care in the community.

In the case of people suffering from severe psychotic crises, the American Soteria project used to provide, critics of bio-psychiatry contend, a more humane and compassionate alternative to coercive psychiatry. The Soteria houses closed in 1983 in the United States due to lack of financial support. However, Soteria-like houses are presently flourishing in Europe, especially in Sweden and other North European countries

The 'Therapeutic State' is a phrase coined by American psychiatrist Thomas Szasz in 1963. The United States under the presidency of George W. Bush is currently planning to implement a nation-wide screening program, the New Freedom Commission on Mental Health, which will seek to diagnose purported psychiatric disorders throughout the entire U.S. . If approved by the Congress and implemented, the Act will have significant pharmaceutical company influence. Civil libertarians warn that the marriage of the State with psychiatry could have catastrophic consequences for civilization . Szasz believes that a solid wall must exist between psychiatry and the State .

In Civilisation and Its Discontents Freud, in later life, wrote of the conflict between man's instinctive nature and the demands of society. Many others, before and after him, have written in similar vein, and some, such as George Miller Beard have pointed to an epidemic of 'neurasthenia' (a condition no longer recognised as an illness) at the start of the twentieth century as indicative of the breakdown of a section of society under the increasing stresses of modern life. R. D. Laing emphasised family nexus as a mechanism whereby individuals become victimised by those around them, often under pressure to keep a family secret.

In recent years, David Smail, a psychotherapist considered part of the anti-psychiatry movement, has written extensively of the 'embodied nature' of the individual in society, and the unwillingness of even therapists to acknowledge the obvious part played by power and interest in modern Western society. He emphasises the fact that feelings and emotions are not, as is commonly supposed, features of the individual, but rather responses to the individual in his situation in society. Even psychotherapy, he suggests, can only change feelings inasmuch as it helps a person to change the 'proximal' and 'distal' influences on his life, which range from family and friends, to politics and work.