Only sometimes, and only for some crimes. It really is rather complicated. Legal philosophy recognizes that the primary purpose of punishments for crime is to deter people from committing crimes, and it therefore doesn't make sense to punish people who are too mentally ill to understand (a) what they were doing, or (b) that it was wrong, or (c) that they would be punished, or (d) what 'punishment' even is.

But legal philosophy is not a wasteland of common sense, and it's also recognized that one of the purposes of punishment for crimes is to prevent recurrence by making it impossible. The legal authority of the state to indefinitely imprison people who are dangerous to others through no fault of their own is well established.