We have previously reported a replicable association between variants at the PDE4D gene and familial schizophrenia in a Finnish cohort. In order to identify the potential functional mutations underlying these previous findings, we sequenced 1.5 Mb of the PDE4D genomic locus in 20 families (consisting of 96 individuals and 79 independent chromosomes), followed by two stages of genotyping across 6668 individuals from multiple Finnish cohorts for major mental illnesses. We identified 4570 SNPs across the PDE4D gene, with 380 associated to schizophrenia (p ≤ 0.05). Importantly, two of these variants, rs35278 and rs165940, are located at transcription factor-binding sites, and displayed replicable association in the two-stage enlargement of the familial schizophrenia cohort (combined statistics for rs35278 p = 0.0012; OR = 1.18, 95% CI: 1.06-1.32; and rs165940 p = 0.0016; OR = 1.27, 95% CI: 1.13-1.41). Further analysis using additional cohorts and endophenotypes revealed that rs165940 principally associates within the psychosis (p = 0.025, OR = 1.18, 95% CI: 1.07-1.30) and cognitive domains of major mental illnesses (g-score p = 0.044, β = -0.033). Specifically, the cognitive domains represented verbal learning and memory (p = 0.0091, β = -0.044) and verbal working memory (p = 0.0062, β = -0.036). Moreover, expression data from the GTEx database demonstrated that rs165940 significantly correlates with the mRNA expression levels of PDE4D in the cerebellum (p-value = 0.04; m-value = 0.9), demonstrating a potential functional consequence for this variant. Thus, rs165940 represents the most likely functional variant for major mental illness at the PDE4D locus in the Finnish population, increasing risk broadly to psychotic disorders.