Perceptual distortions are core features of psychosis. Weakened contrast surround suppression has been proposed as a neural mechanism underlying atypical perceptual experiences. Although previous work has measured suppression by asking participants to report the perceived contrast of a low-contrast target surrounded by a high-contrast surround, it is possible to modulate perceived contrast solely by manipulating the orientation of a matched-contrast center and surround. Removing the bottom-up segmentation cue of contrast difference and isolating orientation-dependent suppression may clarify the neural processes responsible for atypical surround suppression in psychosis. We examined surround suppression across a spectrum of psychotic psychopathology including people with schizophrenia (PSZ; N = 31) and people with bipolar disorder (PBD; N = 29), first-degree biological relatives of these patient groups (PBDrel, PSZrel; N = 28, N = 21, respectively), and healthy controls (N = 29). PSZ exhibited reduced surround suppression across orientations; although group differences were minimal at the condition that produced the strongest suppression. PBD and PSZrel exhibited intermediate suppression, whereas PBDrel performed most similarly to controls. Intriguingly, group differences in orientation-dependent surround suppression magnitude were moderated by visual acuity. A simulation in which visual acuity and/or focal attention interact with untuned gain control reproduces the observed pattern of results, including the lack of group differences when orientation of center and surround are the same. Our findings further elucidate perceptual mechanisms of impaired center-surround processing in psychosis and provide insights into the effects of visual acuity on orientation-dependent suppression in PSZ.