Objective: To investigate whether severity of substance use disorder is independently associated with 15-month symptomatic or functional outcome in young individuals with first-episode psychosis. Method: Ninety-two individuals aged 15 to 30 years with first-episode psychosis participated in a 15-month prospective follow-up study. DSM-IV criteria were used to diagnose psychotic disorders, and DSM-III-R criteria were used to diagnose substance use disorder (abuse or dependence). Measures of outcome included severity of positive and negative symptoms, quality of life, and level of social functioning. Data were collected between March and July 2001 at a specialist first-episode psychosis service and between January and December 1997 at 2 generic mental health services. Results: Multiple linear regression showed that heavy substance use disorder was significantly associated with more severe positive symptoms at 15 months after controlling for the effects of gender, duration of untreated psychosis, and medication adherence (vs. no substance use disorder, p = .006; vs. mild substance use disorder, p = .023). Heavy substance use disorder was also significantly associated with poorer social functioning at 15 months after controlling for the effects of gender, duration of untreated psychosis, medication adherence, and positive symptoms (vs. no substance use disorder, p = .025; vs. mild substance use disorder, p = .047). Heavy substance use disorder was not associated with negative symptoms or quality of life after controlling for the effects of potential confounding variables. Conclusion: Heavy but not mild substance use disorder appears to be independently associated with poorer symptomatic and functional outcome in young patients with first-episode psychosis.