Little research has looked in detail at the subjective experience of adolescents who have been admitted to psychiatric hospital and the potential impact of this on their developing identity. This study aimed to construct a theory of the perceived impact of hospitalisation on the identity of young people admitted to a psychiatric ward, the ways young people might manage threats to their identity and any perceived impact of diagnosis. Nine young people aged 15-17 were interviewed in depth about their experience of admission and any perceived impact on their identity. Young people were current in-patients or ex-patients attending follow-up treatment in the community. Grounded theory methodology was employed in this study. A preliminary model is proposed showing the process from admission to post-discharge with hypothesised impacts on personal and social identity at each stage. Positive outcomes were associated with an improved sense of self and self-efficacy. In contrast, the development of an “illness” explanation for one’s difficulties while in hospital may be a risk for a more negative self-concept and a less favourable future outlook. The study concluded that longitudinal research is required to ascertain long-term outcomes of the proposed model. Emphasizing psychological formulation may ameliorate the perception of individual ‘deficit’ that appeared to be associated with diagnosis.