Background: Small-scale, home-like care environments are increasingly implemented in institutional nursing care as a model to promote resident-directed care, although evidence on its effects is sparse. This study focuses on the effects of small-scale living facilities on the behavior of residents with dementia and use of physical restraints and psychotropic drugs. Methods: A quasi-experimental study was conducted comparing residents in two types of long-term institutional nursing care (i.e. small-scale living facilities and traditional psychogeriatric wards) on three time points: at baseline and follow-ups after six and 12 months. Residents were matched at baseline on cognitive and functional status to increase comparability of groups at baseline. Nurses assessed neuropsychiatric and depressive symptoms, agitation, social engagement, and use of physical restraints using questionnaires. Psychotropic drug use was derived from residents' medical records. Results: In total, 259 residents were included: 124 in small-scale living facilities and 135 controls. Significantly fewer physical restraints and psychotropic drugs were used in small-scale living facilities compared with traditional wards. Residents in small-scale living facilities were significantly more socially engaged, at baseline and after six months follow-up, and displayed more physically non-aggressive behavior after 12 months than residents in traditional wards. No other differences were found. Conclusions: This study suggests positive effects of small-scale living facilities on the use of physical restraints and psychotropic drugs. However, the results for behavior were mixed. More research is needed to gain an insight on the relationship between dementia care environment and other residents' outcomes.