When Luma Mageed heard voices in her head telling her to smother her baby, she was petrified. She knew it would be wrong, but they were insistent.

'The voices promised me that, if I did this thing, all my troubles would disappear and I would feel wonderful,' Mageed said. 'They told me exactly how to suffocate my little girl and, when I refused, they told me to put her in the oven and turn the heat on high. They promised that in just a few minutes it would be over and I would be happy.'

With great difficulty, she resisted the voices. Instead she sought help and was diagnosed with manic depression, post-natal depression and obsessive compulsive disorder. Detained in hospital under the Mental Health Act for six months in 1999, she had no choice but to let her two daughters be taken into foster care.

Although her time in hospital returned Mageed to a tentative sanity, the experience of foster care was so disturbing for her children that she now says that she would avoid seeking help again if it meant that they would have to repeat the experience.

'Fortunately, thanks to the Family Welfare Association, I don't have to juggle the risk my illness might have on my kids with the impact of foster care,' she says.

'With the support of the FWA, I have the confidence to seek help the moment I need it, knowing they will do everything possible to keep my family together.'

The FWA has been chosen, with the help of New Philanthropy Capital, a group that advises donors how to give more effectively, as one of the three mental health charities to be supported by The Observer's Christmas Appeal. Every pound raised by our readers will be matched by a pound from an umbrella body, the Zurich Community Trust. The trust, a charity funded by Zurich Financial Services and its employees, has a long-term 'Mental Health and Families' programme which it hopes will involve several charities.

At the most conservative estimate, there are 154,500 children in England who depend on parents with severe and enduring mental health problems. The impact of parental mental illness on children can be devastating, affecting their mental development and educational achievements, while also damaging children emotionally and socially.

Perhaps as a consequence, between one and two thirds of children whose parents have mental health problems will suffer difficulties themselves at some point during their lives. With appropriate support, however, the children of parents with mental health problems can flourish. It is exactly this sort of help that the FWA provides.

The FWA is Britain's biggest non-government provider of mental health services, offering almost 200 types of help to highly vulnerable families. Its Building Bridges service offers advice and counselling to 960 parents such as Mageed, and 2,000 children, aged from five to 13, such as her daughters, each year.

Building Bridges is a unique service. By working in the homes of those in need, family support workers are able to take parents with, for example, learning difficulties or mental problems through every step of parenting, from giving them an alarm clock to help them get up in the morning to showing them how to bathe, dress and feed their children.

'Working holistically and flexibly with the whole family is effective, not just practically but financially too,' said Helen Dent, the FWA chief executive. 'Building Bridges is cost-effective; the costs of running a Building Bridges service are dwarfed by the cost of a crisis and the need for hospitalisation.'

It costs up to £4,000 a year to help a family through the programme, compared with a bill of £1,365 to provide a bed in a mental health institution for a single week. Nevertheless, it is increasingly difficult to get funding for these services and the FWA needs more money if it is to go on helping families to stay together.

Donations will help families such as that of eight-year-old Morgan Watts, whose temper was so violently uncontrollable that, when the FWA began working with them three months ago, his mother feared for her safety and that of her three other children.

'When Morgan lost his temper, he often really hurt us,' said his mother, Sarah. 'I was permanently terrified of how it would be in a few years' time, when he was taller than me.

'How could I protect myself against him then? How could I protect my other children?'

Adding to her problems was Sarah's own serious depression. 'I was finding it hard enough to function myself, and Morgan's unpredictable furies were the straw that looked likely to break the back of our family,' she said.

But with the help of Denise Mirkovic, an FWA family support worker who comes to see Morgan for one to two hours a week - often taking him and his sisters out on trips to give their mother a break - a crisis has been averted.

'I am now better at not being so angry,' Morgan said, cuddling up to his mother on the sofa and gently stroking the hair of his two-year-old sister, Amelia Rose. 'Denise has taught me how to punch a pillow when I feel like punching someone, and made me a chart that helps me do different things when I start feeling angry. I stuck it on the fridge, so I can read it every day to remind myself.'

In only three months, Sarah says her family has been transformed. 'Before the FWA, our house was a nightmare of screaming and violent fights. The three girls were copying Morgan's behaviour and I was powerless.

'At the worst moments, I felt it was just a matter of time before I lost it entirely and became incapable of being a mother to any of them any more.

'But now life is good again. With Morgan calm, I can be a good mother and begin to heal as an individual. For the first time in years, I really believe that my family has a happy future ahead of us.'

What your money could pay for

£10 Will fund a month of work by the Place2Be school drop-in centre, providing emotional and therapeutic support to 42 children.

£20 Will help to pay for a first meeting between a family in crisis and a worker from the Family Welfare Association's Building Bridges initiative.

£65 Will send a Rethink team into a school to work on raising children's awareness about cannabis and mental health.

· We are grateful to New Philanthropy Capital, which advises donors and charities on giving effectively, for its help in advising The Observer on the selection of mental health charities for the Christmas appeal. Go to philanthropycapital.org for further information. The three charities being supported by this year's appeal are Rethink, Place2Be and the Family Welfare Association.