Infographic and following summary taken from http://www.bestcounselingdegrees.net/madness/ :
A HISTORY OF MADNESS
People are crazy, and always have been. But the ways in which we’ve dealt with mental illness has drastically changed over time.
Through Antiquity, many thought that mental disorders came from the gods. Whether divine insight, or retribution, supernatural meddling was a fall-back explanation for much that was inexplicable.
Psychoses(delusions, delirium, hallucinations)
Neuroses (depression, anxiety)
Physical, not mental afflictions
The school of Hippocrates, 5th century B.C.:
Epilepsy is described as not being sacred, and instead explained by physiological phenomena.
Socrates, The RepubliC,380 B.C.:
“The offspring of the inferior, or of the better when they chance to be deformed, will be put awya in some mysterious, unknown place, as they should be.”
Socrates, however, also considered the positive aspects of madness in lovers, poetic inspiration, prophesying, and mystical rituals.
Galen, Greek physician, 129 A.D.:
Penned the theory of the humours (bodily fluids) in which he sought to explain some mental illnesses.
Romans absorbed many Greek notions of mental illness, including the humoreal theory, and the belief that mental afflictions were the curse or blessing of the gods (or later, the Christian God).
Asclepiades, 40 A.D.:
An advocate of humane treatments for the insane through diet, exercise, and bathing.
Cicero (106-43 BC)
Wrote a questionnaire remarkably similar to today’s psychiatric history and mental state examination, detailing appearance, speech, and significant life events. 
Celsus De Medicina, 50 A.D.: (Unfortunately, Celcus’ treatments became more mainstream in later Rome).
A Roman encyclopaedist who detailed therapy, bloodletting, talking therapy, exorcisms, and even restraints and “tortures” as solutions to mental illness.
Treatment of madness in Europe was thought of in religious terms, but the Middle Ages were also the origin of both hospitals and asylums.
History of Madness
11th century: Ancient Greek texts preserved in the Islamic world are translated into latin. Giving the basis for medical universities in the 12 century.
1100 A.D.: An asylum opens in Metz, France.
1290: De Praerogitiva Regis grants the land of natural fools to the King.
1310: German madhouse at Elbing created.
1371: Royal license given to chaplain Robert Denton to use his house in London as a mental hospital.
1494: The Ship of Fools, a book written by theologian Sebastian Brant, details the shipping off a the insane to ride on cargo ships through the canals of Europe and overseas.
Epileptics were regarded as demoniacs, and epilepsy was thought to be contagious. 
In the Islamic World
From early days, Muslims have had sympathetic attitudes towards the mentally ill as dictated in the Koran. Through Greek texts preserved in the Islamic world, Greek concepts of mental illness persisted throughout he middle ages.
750 A.D. first hospital build in Damascus
873 A.D. Hospital opened in Cairo
Mental Hospitals built:
The renaissance cut both ways, increased medical knowledge and religious fervor coupled to both persecute the insane as witches, and provide a greater sense of sympathy for the unfortunately afflicted.
1518: the Royal College of Physicians created. Controlled who practiced as physicians in London to protect the public.
1520:Paracelsus, a German doctor, writes the book Diseases which lead to a Loss of Reason claiming mental illness is not from spirits, but of natural causes.
1592: Various degrees of insanity discussed in a trial for conspiracy to kill the king.
1563:Johann Weyer, author of a book claiming madness is the result of natural causes, not demonic possession is labeled a sorcerer.
The enlightenment saw some regulation of mental hospitals, a shift away from religious thought about the insane, but still largely bad horrible conditions for the insane.
1660′s: Rich patrons pay to tour and watch the insane at Bedlam.
1667: New Bethlam (Bedlam) mental hospital opens after the great fire of London. [# image for the statues at the front, one called melancholia, one raving madness, at citation ]
1670′s: Earliest private madhouses in England. Laws to redress wrongful imprisonment in place.
1690: John Locke notes that there is a degree of madness in almost everyone. Madness is the inability to let reason sort out mad ideas.
1735: A Rake’s Progress published. Stages: 1.) Sudden wealth, 2. French Manners, 3. A Brothel, 4. escapes arrest,5. marries for money,6. gambles, 7. a debtors’ prison, 8. Bedlam 
1758: The very rich confined mentally ill family members in single person mad houses, at least partially for secrecy. As the British Royal Family did in 1788, 1801, 1811, and 1916.
1789: Vincenzo Chiarugi, superintendent of a Florentine mental hospital introduced for patience hygiene, recreation, work opportunities, and minimal restraints.
1789:Jean-Baptiste Pussin, manager of Parisian mental hospital forbade beating of patients.
1790: The French Revolution freed all inmates at madhouses to be reexamined, and only if they were truly mad, readmitted.
1794: French physician Philippe Pinel advocated treating patients with kindness and patience, rather than cruelty and violence.
THE 19TH CENTURY
1800: The 1800 Criminal Lunatics Act placed the criminally insane, particularly those who threatened the king in custody. By the end of the century there were 74,000 people in custody.
1810: Suicide ruled not a crime in the French Penal Code of 1810.
1823: Potentially the first lectures on modern psychiatry.
1824: Phrenology, the study of the shape of one’s head to determine the qualities of one’s brain, was begun.
1828: Commission formed to control London’s madhouses.
1838: French law passed mandating the housing of the insane at government expense.
1840: From the 1840′s on, American activist Dorothea Dix lobbied for the creation of 32 state psychiatric hospitals.
1856: Daniel Dolly, a patient at a British asylum died after a treatment of a 600 gallon cold-water shower over 28 minutes.
1860′s: Social Darwinist belief that insanity is the end product of an incurable degenerative disease in a victim’s inherited biology flourishes.
1863: Patients moved, Bethlam becomes asylum for the “superior class.”
1870: The journal Brain first published.
1882: Frederick Myers publishes thoughts on levels of consciousness and unconsciousness (the subliminal self).
1890: the 1890 Lunacy Act required court orders for private patients to be detained against their will, and restricted private asylums.
The 1900′s were characterized (through the developed world) with the increase of institutionalization through the first half of the century, then the deinstitutionalization as alternative therapies and drugs were created.
560,000 in the 1950s to 130,000 by 1980
State psychiatric beds per 100,000: