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Yarra Bend Asylum was the first permanent institution established in Victoria that was devoted to the treatment of the mentally ill. It opened in 1848 as a ward of the Asylum at Tarban Creek in New South Wales. It was not officially called Yarra Bend Asylum until July 1851 when the Port Phillip District separated from the Colony of New South Wales. Prior to the establishment of Yarra Bend lunatic patients had been kept in the District's gaols. Yarra Bend was proclaimed an Asylum under the provisions of the Lunacy Statute 1867 (No.309) in the Government Gazette in October 1867.

From its establishment until 1905 the institution at Yarra Bend was known as an Asylum. This title emphasised its function as a place of detention rather than a hospital which provided treatment for mentally ill people who could possibly be cured. The Lunacy Act 1903 (No.1873) changed the title of all "asylums" to "hospitals for the insane". This Act came into operation in 1905. Despite the change in designation the function and structure of the agency was unchanged. The title was altered to reflect the community's changing attitude towards mental illness and the Victorian Government's approach to the treatment of mentally disturbed persons.

An asylum/hospital for the insane was any public building proclaimed by the Governor-in-Council in the Government Gazette as a place for the reception of lunatics. An asylum could also provide wards for the temporary reception of patients as well as long term patients. Patients could not be retained in an asylum without a warrant requesting their admission. Prior to 1867 the warrant was signed by the Governor. After this date the Chief Secretary (VRG 26) was responsible for this function. Under the provisions of the Lunacy Act 1914 (No.2539) patients could also be admitted to a hospital for the insane on a voluntary basis, that is, on the patient's own request for a specified period of time.

The Yarra Bend Asylum was situated near the junction of Merri Creek and the Yarra River near the former site of Fairlea Women's Prison.

Ha-Ha walls
Another distinctive feature of Yarra Bend is the use of a variation on Ha-Ha walls around some of the inmates' courtyards. They consisted of a trench, one side of which was vertical and faced with stone or bricks, the other side sloped and turfed. From the inside, the walls presented a tall face to patients, detering them from escaping, while from outside the walls looked low so as not to suggest imprisonment. A journalist with The Argus described simular walls at Kew Asylum as an 'excellent arrangement, as it enables the patients to see the outside world, and does away with that gaol appearance and feeling inculcated by the walls of the old asylums'.

Decline and closure
The Government of Victoria originally intended for Yarra Bend to be closed once Kew, Ararat and Beechworth asylums were established. However, the gold rush caused a population explosion in the colony, increasing the burden on the new asylums. This was compounded by the practice of housing 'inebriates', 'idiots' and 'imbeciles' in with the 'lunatics' at lunatic asylums up until the 1880s.

Overcrowding and the primitive living conditions were problems at Yarra Bend over a long period of time. The overcrowding was relieved to some extent when new asylums were opened at Royal Park, and Mont Park in the metropolitan area and Sunbury outside the metropolitan district. Victorian Premier Sir Thomas Bent decided in 1905 that no more money was to be used for Yarra Bend and the buildings fell further into disrepair. Despite this, the asylum continued to operate until new admissions eventually ceased in 1924 and the institution was finally closed in 1925. All remaining patients were transferred to Mont Park Asylum.

Cemetery
Inmates who died at Yarra Bend Asylum were interred usually interred in unmarked, common graves within the asylum grounds. Families who wished their relative be interred in a single grave were required to pay an extra fee. The exact location and the number of interments that took place is unknown, but it has been suggested as many as 1,200 former inmates were interred, in up to 400 graves. According to Parks Victoria, the cemetery was located along the banks of the Yarra, on what is today a practice fairway of the Yarra Bend public golf course. When the asylum closed, the bodies were exhumed and relocated to Melbourne Cemetery.