(FORTUNE Small Business) – Every Sunday for a couple of years, Walker Harris and Jeffrey Hood made their way to the corner where Garfield Park Baptist Church stands, on the West Side of Chicago. They arrived separately and for very different reasons.

Dressed in a dark suit and tie, Harris settled his broad-shouldered frame into the church's crowded pews to pray, his large callused hands folded neatly across his lap. A humble, dignified man, Harris, 58, wasn't likely to shout "Hallelujah!" during the sermon. Every few moments he would nod his head approvingly or murmur a deep, resonant "Amen."

Just a couple of hundred yards away, Jeffrey Hood usually stood on the corner outside the sanctuary in baggy jeans and a baseball cap slanted above wary eyes. The bustling block served as Hood's makeshift storefront for peddling marijuana and crack cocaine. On occasion, a parishioner would ask him to move or invite him inside to seek salvation. But Hood, who at 17 already had a rap sheet as long as the Book of Psalms, politely declined. "Back then, my hero was the local drug kingpin," says Hood, 23, whose boyish grin seems incongruous when he recounts his convictions for drug possession, assault on a police officer, and other offenses.

Harris and Hood might never have spoken if Harris had not faced a critical labor shortage at his business, Harris Ice, and, at a fellow parishioner's suggestion, taken a chance on hiring Hood. Three years later, Hood has become Harris's unlikely protégé, a tireless worker whose instinctive understanding of the ice business has helped him take on a growing leadership role at the plant, which now employs other ex-cons. "He's a natural," says Harris. "As long as I'm in business, I'm going to try to keep him around."

At a time when policymakers struggle to integrate a record number of job seekers with criminal records into the workforce, Walker Harris's success in mentoring ex-prisoners such as Hood offers insights into what works. The Bush administration's Ready4Work program, introduced in 2004, has set aside $300 million to pay for faith-based initiatives that provide job placement, mentoring, and other services to men and women returning from prison. Some of the local nonprofits that the program supports have reported success. But despite such results, many employers are not willing to hire former inmates. As a recent Princeton University study confirmed, companies are particularly unlikely to hire African Americans with drug-related convictions in their past, such as Hood.

Though Harris is a churchgoing man who believes in second chances, he employs ex-cons mainly for a practical reason: He otherwise cannot find the workers he needs in North Lawndale, the crime-ridden neighborhood surrounding his plant. "I'm running a community-based business--not a social program," he says. Nonetheless, he has been more successful in turning former inmates into productive workers than have many social reformers, albeit on a small scale. Of the dozen or so former inmates whom he has hired as full-time workers since 1995, he knows of only two who have returned to prison. In contrast, two-thirds of the 630,000 adults who will be released from prison this year will be behind bars again within three years, according to estimates by the Urban Institute, a Washington, D.C., think tank. Harris and those who work with him attribute his track record to his unique--some might say draconian--system for vetting and training ex-cons. "With Walker Harris, you don't get 'Read John: 16,' " says Julian Macklin, employment manager at North Lawndale Employment Network, a Chicago-based nonprofit that has placed dozens of ex-offenders at Harris Ice for part-time work. "Let's face it: North Lawndale is a violent community. You can't run a business, legal or illegal, without demanding respect. Unlike the faith-based programs, where they will pray for you and give you chance after chance, Harris just isn't going to tolerate certain behavior. He's an honest, Christian man, but his main agenda is getting ice out the door."

Indeed, his approach has helped keep Harris's business afloat. The company generates just over $1 million in annual sales, and the bulk of its profits are plowed back into the operation. "I must be doing something right or I wouldn't still be here after 33 years," Harris says.

The youngest son of cotton sharecroppers from Louisiana, Harris was 19 when he left Shreveport for Chicago's West Side, where his sister had moved a year earlier. It was 1971, and Harris found work as a bagger at a local ice plant. When one of its independent distributors announced he was retiring, Harris bought his truck route with $1,200 borrowed from his brother. He made the rounds to 30 clients in a jalopy with a hole in the floor. "You had to have boots and a raincoat on to drive that truck," he recalls.

Within a year Harris had founded his own ice company, and he bought the distribution facility from his former employer, City Ice, with a promissory note due in three years. Turning once again to his brother for a loan, Harris hired five employees, bought five refrigerated trucks, and began marketing crushed and block ice to grocery stores, fish markets, bars, and produce stands. Hardly an effusive personality, he came up with a straightforward sales pitch that got the job done in a marketplace competing companies ignored. "I just said, 'I'm the neighborhood iceman. Do you need ice for your business?' " he says. A frugal, hard-working man who prefers overalls and steel-shank boots to business suits, Harris put every available dollar into his company and paid off his loan in two years. As the business grew, he allowed himself to take two months off each year to go fishing, leaving the business in the care of his chief engineer.

But as Harris Ice prospered, manufacturing jobs moved out of North Lawndale and crime rose. "The neighborhood got so infested with drugs that most of the able-bodied young folks all seemed to wind up in jail," says Harris. Adding to the challenge was the physical rigor of icemaking, which requires heavy lifting and in summer involves moving from withering heat to sub-zero temperatures and back again. Workers must be trained to operate colossal pieces of machinery, such as a giant icemaker that alternately shoots hot and cold water through giant pipes. "It got to a point where it was hard to find qualified people to do the work," Harris recalls. He was held up at gunpoint and forced to empty the cash register of $2,000; for years he turned away any job applicant who had a criminal record. "But then I thought, Why not give them a chance to prove themselves?" The first ex-con he hired was a former drug dealer, who proved to be a reliable worker. Harris gradually began taking a chance on other former inmates. He discovered some unexpected pluses. "They can be very loyal and appreciative of the wages and benefits," he says.

By trial and error, Harris developed a quirky hiring system to help him determine which ex-cons were the most promising. Some of his interviewing and evaluation techniques would undoubtedly make corporate human resources managers cringe. But his methods have allowed Harris to staff his factory with 18 permanent employees and to expand his workforce to as many as 60 during the peak summer months. It was during that busy season in 2002 that a tall, slender kid in baggy jeans and a baseball cap showed up at Harris Ice's loading dock ready to turn his life around. His name was Jeffrey Hood.

When Hood applied for a job at Harris Ice at the urging of his girlfriend's mother, he knew that he would have to prove himself. The youngest of five children raised by a single mother on the West Side of Chicago, he rarely saw his father, a mechanic who owned a car repair shop in town. Nonetheless, Hood admired his father's knack for repairing and operating machinery, and realized early that he possessed a similar gift. In his neighborhood he became known as a sort of bicycle doctor, the guy who fixed and souped up other kids' rides. What he lacked, though, was a role model to help him channel his talent into a productive vocation. "I felt like nobody was there for me," he says, "and I started getting in trouble all the time."

Entering high school, Hood found camaraderie in the local street gang. At 14, he says, he was arrested for stealing computers from a school he broke into with a buddy. After serving almost a year in a juvenile detention center near Carbondale, Ill., he discovered what seemed an easier, more profitable path--dealing drugs. "I went from ditching lunch to ditching school to smoking weed, and then realizing I needed money to smoke weed and date girls. That's how the whole cycle got started." By the time he was 17, he had dropped out of high school. Sometimes he tried to work a legitimate job, such as one he held briefly at Au Bon Pain. Like other positions he found, though, it didn't seem to suit him. "That whole bakery thing of bread and sandwiches just didn't work for me," he says. He liked hard physical work, the sort that challenged his limbs and brain. He drifted further into the thug life.

In 1997, Hood says, a police cruiser crashed into a city bus while chasing him in a car he had stolen and was driving, and he faced charges of theft and assault on a police officer. (Records in the case are sealed because he was a juvenile.) There were no injuries during the incident, he says. By leading officers to an illegal firearm that he and a buddy owned, he says, he was able to plea-bargain his case down to a one-year sentence, which he served at a juvenile boot camp in downstate Illinois.

It was after Hood's release that his girlfriend's mother encouraged him to apply for work at Harris Ice. A member of Garfield Park Baptist Church, Georgia Mae Jackson, 63, knew Harris had taken a chance on others who had been in trouble, and she believed that Hood had the potential to change with the proper guidance. "Deacon Harris works so well with youngsters, I asked him whether he would give my boy a try," says Jackson, mother of Denisha Townes, who since has become Hood's fiancée and the mother of his new baby girl. "And then I asked Jeffrey, 'If I help you get a job, will you promise me you'll keep it?' " she recalls. "And he said yes."

When Hood showed up at the company's loading dock in the summer of 2002 for an interview, Harris was recruiting part-time workers to haul ice for the Taste of Chicago, a food festival. "When I asked him about the gaps in his work history, he told me right off he had been in trouble and that he was trying to turn his life around," recalls Harris, who was impressed by Hood's frankness.

To be sure, Hood's résumé had little in common with that of the self-made Harris, who had paid for his last Cadillac Coupe de Ville with $20,000 of loose quarters that he loaded into two garbage cans in his pickup truck. (He'd saved the change from his pockets for years.) But the Taste of Chicago was Harris's largest contract, and he needed more workers to fulfill it. He decided to give Hood a chance to work for him during the ten-day festival.

The pressure of handling such a major event left Harris short-tempered. In blazing heat, Harris Ice was supplying some 5,000 pounds of ice hourly to the 97 restaurants and 22 beverage vendors across 200-acre Grant Park. Hood recalls a moment when Harris had trouble finding a particular vendor. His team had hauled the ice across the grounds a couple of times. When Hood suggested where to look next, Harris snapped, "Shut the hell up. Tell me how old you are, boy."

There were snickers all around. "Twenty," Hood replied, seething with anger and embarrassment.

"I've been doing this one job longer than you've been on this earth," Harris said. "Don't come around here and try to tell me how to do my job."

Hood planned to quit, but later that afternoon Harris pulled him aside and apologized, explaining that sometimes in a crisis you have to allow leaders to lead without comment. As a former gang member, Hood understood hierarchy and respected it. "What he was basically saying was that this is his show, not mine," Hood says. "I had no business fronting him off like that. I was wrong." As the festival wore on, Hood's work grew more focused and intense. "This kid never complained," Harris recalls. "Halfway through, I tried to motivate the others by making the announcement that 'somebody here has the potential to permanently be on my team,' " he says, but nobody came close to working as hard as Hood. "I guess I just like harder labor, working with my hands and taking on a manly responsibility," says Hood. The day after the festival, Harris hired him for a permanent entry-level job at Harris Ice.

Under Harris's tutelage, Hood has thrived as he has mastered icemaking. Some of his proudest moments have come when Harris sent him alone to out-of-state training workshops. Whether he was in Texas or Ohio, Hood returned with high praise from instructors, which circulated back to Harris. "Nobody ever trusted me like Mr. Harris," says Hood. "That's part of what drives me to do a good job here."

In sturdy health, Harris plans to run the company for years. Still, he wonders if it will live beyond him. Harris's 25-year-old son, Walker Harris III, whom he calls his "miracle boy," is mentally disabled. Born with a brain tumor, he was not expected to live past 4 years of age. He has taken on some administrative tasks at Harris Ice, such as sorting the mail, but the elder Harris does not consider him able to run the company. Asked if he sees Hood as a successor, Harris's eyes brighten. "Let's just say I see the potential for him to rise as high here as he wants to," he says. "The future is up to him."

Harris recalls a boy who once ran errands at the plant to earn money to help his mother. They lost touch after the young man finished high school. Recently Harris was ending his workday when the boy--now a well-dressed man--stopped by and told Harris he was working for the FBI and was stationed overseas. "Thank you for believing in me. It meant more than you'll ever know," he told Harris, whose voice grew husky as he told the story.

Hood's future path may not be as clear as that of Harris's other protégé, but one thing is certain: The former drug dealer is heading in a direction that would have been highly unlikely if Harris had not given him a job. As policymakers search for ways to transform the nation's growing population of ex-cons into productive, law-abiding citizens, Harris Ice has quietly created its own blueprint to achieve just that end. Like many innovators, Harris was motivated not so much by philanthropy as by an entrepreneur's passion to keep his business alive.