Three aspects of the psychological consequences of long-term unemployment are reviewed. First, the impact of long-term unemployment upon the psychological well-being is outlined. Different longitudinal studies in various countries show a significant deterioration of the psychological health of the unemployed, which stabilizes after a certain period of time. This stabilization of the mental health at a lower level of well-being is caused by a process of adaptation: The long-term unemployed adapt to their new role and withdraw from the labour market by lowering their employment commitment and their job seeking behaviour. In the second part of this review, we show that the probability of finding work decreases because of this adaptation process. In the third part of this article. research on the psychological impact of re-employment is reviewed. It shows that the psychological well-being of the previously unemployed improves strongly once they find work. Long-term unemployment thus creates a vicious circle. It leads to the deterioration of the mental health. This deterioration can be stopped by adapting oneself to unemployment. This adaptation however, reduces the probability of finding work, while only re-employment re-establishes the psychological well-being at the pre-unemployment level.