In this chapter, we map the field of tension in which sexual and gender minorities navigate mental healthcare, and aim at providing a conceptual and historical basis to consider ethical questions that can arise when working with sexual and gender minorities in clinical practice. In the first part of this chapter, we provide historical and conceptual background information. We trace the history of sexual and gender diversity in psychiatry, which is characterized by the pathologizing of homosexuality and trans* identity and experiences. We explain how nowadays, the approach to sexual and gender diversity in mental healthcare has shifted significantly towards acceptance, support and respect, as visible in the introduction of new diagnoses such as Gender Dysphoria. We introduce the broadly accepted minority stress theory to explain the high prevalence of mental distress in sexual and gender minorities. In the second part of the chapter, we focus on three ethical challenges that may arise when caring for sexual and gender minorities, with a focus on trans* and gender diverse individuals. The first concerns discriminatory practices and knowledge deficiencies that may lead to disadvantages for gender and sexual minorities in mental healthcare. Secondly, we consider ethical questions in psychotherapy and counselling for trans* and gender diverse individuals. We introduce gender-affirmative psychotherapy as an emerging approach to gender diversity in mental healthcare. Thirdly, we briefly discuss ethical questions in treatment decisions with trans* and gender diverse adolescents. We close by interrogating the state of the depathologizing of sexual and gender diversity in mental healthcare.