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This paper deals with the prison system in the Netherlands in light of the current turn in criminal policy. By resolving the significant problem of threatening overcapacity in Dutch penitentiary institutions an answer is offered to the question that penologists have been asking for the past three decades: Are the prisons entering a new phase of their development and function? The personality of the prisoner and his psychosocial recuperation, as the absolute focus and historical determinant of the Dutch prisons' philosophy, fall into a subordinate position in public demands for the safety of the society as well as insisting of political structures on the reducing costs of the system. The coincidence of political demand for reducing the costs by applying modern technological achievements in the fields of supervision and control, for the first time in history, allows extensive application of extramural forms of punishment, which closes a transitional institution in the process of punishing the vast majority of prisoners, for whom intramural rehabilitation programmes are being reduced. Full and exclusive institutionalization is subjected to limited groups of prisoners convicted for the hardest criminal offenses. The paper deals with the historical background of social and political developments in the Netherlands that have determined the new direction of the penal policy, and thus the nature of the prisons. In the second part of the paper, the above course of research continues in the direction of thoroughly elaborating the ways of functioning and structure of the modern prison system in the Netherlands, with an overview of the functioning of standard and experimental forms of penitentiary programs. [ABSTRACT FROM AUTHOR]