On May 23, 2011, the U.S. Supreme Court issued a ruling in a lawsuit against the state involving prison overcrowding. Specifically, the court upheld the ruling of a federal three–judge panel requiring the state to reduce overcrowding in its prisons to 137.5 percent of its “design capacity” within two years. The court’s decision will almost certainly result in some of the most dramatic changes to the state’s prison system in decades. The realignment plan that the Legislature recently enacted could go a long way toward meeting the court’s requirements. Our analysis, however, indicates that the realignment plan alone is unlikely to reduce overcrowding sufficiently within the two–year deadline set by the court. This indicates to us that, as the U.S. Supreme Court suggested, a somewhat longer timeframe is warranted. In addition, we recommend that the Legislature consider how the overcrowding reduction will affect the types of prison facilities California Department of Corrections and Rehabilitation (CDCR) has planned to build. Finally, we recommend that the Legislature provide CDCR with more flexibility to use contract beds in order to manage overcrowding, particularly in the near term. Addressing these issues would help to better plan for a dramatically reduced state inmate population within the state’s current fiscal situation.