Neuropsychological functioning turns out to be a rate-limiting factor in psychiatry. However, little is known when comparing neuropsychological and psychosocial functioning in inpatients with schizophrenia or severe depression in their treatment pathways including add-on psychoeducation or the latter combined with cognitive behavioral therapy up to 2-year follow-up. To evaluate this question, we investigated these variables in two randomised controlled trials including 196 patients with DSM-IV schizophrenia and 177 patients with major depression. Outcome measures were assessed in the hospital at pre- and posttreatment and following discharge until 2-year follow-up. We focused on neuropsychological and psychosocial functioning regarding its differences and changes over time in data of two pooled trials. There were significant time effects indicating gains in knowledge about the illness, short and medium-term memory (VLMT) and psychosocial functioning (GAF), however, the latter was the only variable showing a time x study/diagnosis interaction effect at 2-year follow-up, showing significant better outcome in depression compared to schizophrenia. Moderator analysis showed no changes in psychosocial and neuropsychological functioning in schizophrenia and in affective disorders due to age, duration of illness or sex. Looking at the rehospitalisation rates there were no significant differences between both disorders. Both groups treated with psychoeducation or a combination of psychoeducation and CBT improved in neuropsychological and psychosocial functioning as well as knowledge about the illness at 2-year follow-up, however, patients with major depression showed greater gains in psychosocial functioning compared to patients with schizophrenia. Possible implications of these findings were discussed.