Functional disability is a key component of many psychiatric illnesses, particularly schizophrenia. Impairments in social and role functioning are linked to cognitive deficits, a core feature of psychosis. Retrospective analyses demonstrate that substantial functional decline precedes the onset of psychosis. Recent investigations reveal that individuals at clinical-high-risk (CHR) for psychosis show impairments in social relationships, work/school functioning and daily living skills. CHR youth also demonstrate a pattern of impairment across a range of cognitive domains, including social cognition, which is qualitatively similar to that of individuals with schizophrenia. While many studies have sought to elucidate predictors of clinical deterioration, specifically the development of schizophrenia, in such CHR samples, few have investigated factors relevant to psychosocial outcome. This review integrates recent findings regarding cognitive and social-cognitive predictors of outcome in CHR individuals, and proposes potential directions for future research that will contribute to targeted interventions and improved outcome for at-risk youth.