Neurocognitive impairment is commonly associated with functional disability in established depressive, bipolar and psychotic disorders. However, little is known about the longer-term functional implications of these impairments in early phase transdiagnostic cohorts. We aimed to examine associations between neurocognition and functioning at baseline and over time. We used mixed effects models to investigate associations between neurocognitive test scores and longitudinal social and occupational functioning ("Social and Occupational Functioning Assessment Scale") at 1-7 timepoints over five-years in 767 individuals accessing youth mental health services. Analyses were adjusted for age, sex, premorbid IQ, and symptom severity. Lower baseline functioning was associated with male sex (coefficient -3.78, 95% CI -5.22 to -2.34 p < 0.001), poorer verbal memory (coefficient 0.90, 95% CI 0.42 to 1.38, p < 0.001), more severe depressive (coefficient -0.28, 95% CI -0.41 to -0.15, p < 0.001), negative (coefficient -0.49, 95% CI -0.74 to -0.25, p < 0.001), and positive symptoms (coefficient -0.25, 95% CI -0.41 to -0.09, p = 0.002) and lower premorbid IQ (coefficient 0.13, 95% CI 0.07 to 0.19, p < 0.001). The rate of change in functioning over time varied among patients depending on their sex (male; coefficient 0.73, 95% CI 0.49 to 0.98, p < 0.001) and baseline level of cognitive flexibility (coefficient 0.14, 95% CI 0.06 to 0.22, p < 0.001), such that patients with the lowest scores had the least improvement in functioning. Impaired cognitive flexibility is common and may represent a meaningful and transdiagnostic target for cognitive remediation in youth mental health settings. Future studies should pilot cognitive remediation targeting cognitive flexibility while monitoring changes in functioning.