The passage of the Adoption and Safe Families Act (“ASFA”) in 1997 led child welfare agencies to focus on increasing the number of adoptions of children in foster care. Originally referred to as an “adoption promotion” bill, this federal legislative act was a response to the exploding number of children entering the foster care system and a corresponding dearth of exit opportunities to permanent homes. Historically, child welfare agencies and courts have relied heavily on reunification and adoption as pathways out of foster care. Yet, ASFA explicitly recognizes a third “exit alternative”-legal guardianship – which promises to move a substantial number of children out of the formal child welfare system and into permanent homes. To the continuing detriment of children and parents embroiled in the child welfare system, the prevailing opinion among judicial officers, state agencies and child advocates is that permanent legal guardianship is “second best” to adoption in cases where reunification cannot be achieved. Child welfare policy based on this opinion is a failure of law and outdated psychology theories to effectively capture the reality of child rearing and familial structures. Greater funding of adoption has helped to legitimate the preference for adoption over guardianship. With the expansion of subsidized guardianship programs, where a family’s financial gain can be ruled out as the incentive for choosing adoption over guardianship, and with increasing evidence demonstrating that guardianship programs increase permanency rates, states must reexamine policies that subordinate guardianship to adoption. Children are poorly served when legal and psychological fictions form the basis of policy decisions that affect their lives. At stake is the significant cost to well-being and permanency for thousands of children in foster care. Part I of this article will challenge the theoretical grounding of the preference for adoption. Part II will describe subsidized guardianship and its use as an adoption alternative. Part III will examine a case study that illuminates the tensions inherent in the adoption/guardianship debate. Part IV will make an argument for the acceptance of subsidized legal guardianship as an equal partner with adoption and encourage legislative changes to enable states to replace the hierarchy of permanency planning with a “continuum” approach that better serves the needs of children in foster care.