The complex nature of managing care for people with severe mental illness (SMI), including major depression, bipolar disorder, and schizophrenia, is a challenge for primary care practices, especially in rural areas. The team-based emphasis of medical homes may act as an important facilitator to help reduce observed rural-urban differences in care.The objective of this study was to examine whether enrollment in medical homes improved care in rural versus urban settings for people with SMI.Secondary data analysis of North Carolina Medicaid claims from 2004-2007, using propensity score weights and generalized estimating equations to assess differences between urban, nonmetropolitan urban and rural areas.Medicaid-enrolled adults with diagnoses of major depressive disorder, bipolar disorder or schizophrenia. Medicare/Medicaid dual eligibles were excluded.We examined utilization measures of primary care use, specialty mental health use, inpatient hospitalizations, and emergency department use and medication adherence.Rural medical home enrollees generally had higher primary care use and medication adherence than rural nonmedical home enrollees. Rural medical home enrollees had fewer primary care visits than urban medical home enrollees, but both groups were similar on the other outcome measures. These findings varied somewhat by SMI diagnosis.Findings indicate that enrollment in medical homes among rural Medicaid beneficiaries holds the promise of reducing rural-urban differences in care. Both urban and rural medical homes may benefit from targeted resources to help close the remaining gaps and to improve the success of the medical home model in addressing the health care needs of people with SMI.