In order for Virtual Environments (VE) to be efficiently developed in the areas of clinical psychology and neuropsychology, a number of basic theoretical and pragmatic issues need to be considered. The current status of VE’s in these fields, while provocative, is limited by the small number of controlled studies that have been reported which apply this technology to clinical populations. This is to be expected considering it's relatively recent development, expense, and the lack of familiarity with the technology by mainstream researchers in these fields. In spite of this, some work has emerged which can begin to provide a basic foundation of knowledge which could be usefiil for guiding future research efforts. Although much of the work does not involve the use of fully immersive head mounted displays (HMD's), studies reporting PC-based flatscreen approaches are providing valuable information on issues necessary for the reasonable and measured development of VE/mental health applications. In light of this, the following review will focus on basic issues that we see as important for the development of both HMD and non-HMD VE applications for clinical psychology, neuropsychological assessment, and cognitive rehabilitation. These basic issues are discussed in terms of decision-making for choosing to develop and apply a VE for a mental health application. The chapter covers the issues involved with choosing a VE approach over already existing methods, deciding on the “fit” between a VE approach and the clinical population, level of presence, navigation factors, side effects, generalization, and general methodological and data analysis concerns.