This study aimed to assess the neurophysiological effects of acute atypical antipsychotic treatment on cognitive functioning in subjects presenting with a first episode of psychosis. We used functional MRI to examine the modulatory effects of acute psychopharmacological intervention on brain activation during four different cognitive tasks: overt verbal fluency, random movement generation, n-back and a spatial object memory task. Treatment with atypical antipsychotics was associated with alterations in regional activation during each task and also when task demands were manipulated within paradigms. The initial treatment of psychosis with atypical antipsychotics thus appears to be associated with modifications of the neurofunctional correlates of executive and mnemonic functions. These effects need to be considered when interpreting group differences in activation between medicated patients and controls.