Background There is increasing evidence that psychological factors (e.g., defeatist performance beliefs, trait negative affect) contribute to poor functional outcome in people with schizophrenia. In the current study, we evaluated whether multiple psychological factors predict poor functional outcome in individuals with schizophrenia, and whether associations between psychological variables and functional outcome persist even after accounting for neuropsychological impairment and negative symptoms. Methods 100 patients meeting diagnostic criteria for schizophrenia or schizoaffective disorder and 78 demographically matched healthy control subjects completed self-report psychological measures, neuropsychological testing, and clinical rating scales. Results Self-report scales assessing negative affectivity, defeatist performance beliefs, anhedonia, and behavioral inhibition were significantly correlated with functional outcome in people with schizophrenia. Neuropsychological impairment was associated with vocational outcome, whereas most of the self-report measures were related to social outcome. Defeatist performance attitudes were not correlated with neuropsychological performance. Conclusions Self-report measures predict variance in functional outcome beyond measures of clinical symptomatology and neuropsychological impairment. Findings indicate that psychological factors may be meaningful targets for psychosocial interventions aimed at improving functional outcome in schizophrenia.