The functional outcome in schizophrenia spectrum disorders is affected by multiple factors such as cognitive performance and clinical symptoms. Psychiatric disability may be another important determinant of functional outcome. The purpose of this study was to test whether schizophrenia symptoms and psychiatric disability mediated the association between cognition and functioning. Between April 2013 and July 2017, we included 108 community-dwelling adults with stable schizophrenia spectrum disorder in a multicenter study. Psychiatric disability was assessed with the Evaluation of Cognitive Processes involved in Disability in Schizophrenia (ECPDS) scale by relatives of patients. ECPDS focused on the broad array of motivational, neurocognitive, sociocognitive, and metacognitive impairments that result in activity restrictions. We used a battery of tests to assess seven cognition domains (processing speed, attention/vigilance, working, verbal and visual memory, reasoning and problem solving, and executive functioning) and cross-sectional structural equation modeling (SEM) for the mediation analyses. We estimated the one-year temporal stability of ECPDS scores in 45 participants. The model provided showed good fit and explained 43.9% of the variance in functioning. The effect of neurocognition on functioning was fully mediated by symptoms (proportion mediated: 36.5%) and psychiatric disability (proportion mediated: 31.3%). The ECPDS score had acceptable one-year temporal stability. The ECPDS scale has satisfactory psychometric properties, and shows significant convergence with neurocognition and functioning, suggesting a role for this tool in the routine evaluation of cognitive remediation needs. Our model validates psychiatric disability as a crucial step from cognitive impairment to restricted participation in life situations.