Background: Well-designed prospective studies of substance misuse in first-episode psychosis can improve our understanding of the risks associated with comorbid substance misuse and psychosis. Aims: To examine the potential effects of substance misuse on in-patient admission and remission and relapse of positive symptoms in first-episode psychosis. Method: The study was a prospective 15-month follow-up investigation of 103 patients with first-episode psychosis recruited from three mental health services. Results: Substance misuse was independently associated with increased risk of in-patient admission, relapse of positive symptoms and shorter time to relapse of positive symptoms after controlling for potential confounding factors. Substance misuse was not associated with remission or time to remission of positive symptoms. Heavy substance misuse was associated with increased risk of in-patient admission, relapse and shorter time to relapse. Conclusions: Substance misuse is an independent risk factor for a problematic recovery from first-episode psychosis.