The purpose of this study was to investigate psycholinguistic behaviour, as language processing, verbal reasoning and discourse production, in hallucinating and non-hallucinating subjects suffering from psychotic disorders. Nineteen hallucinating and 13 non-hallucinating subjects were assessed on a battery of tests of psycholnguistic functioning with complementary measures of abstraction and discourse cohesion. The experimental groups were matched with healthy controls by age, gender and education. Only a discourse score differentiated the patient groups. No tests of receptive or executive psycho-linguistic functioning or abstraction distinguished the patient groups with hallucinating or non-hallucinating behaviour, thus disorders of linguistic processing in these domains are not specific to patients with auditory hallucinations. The patient groups did differ from their healthy controls on tests that required abstract processing and reasoning. There is also some evidence that both patient groups had difficulty with lexical retrieval or word generation, and with memory and comprehension. The conclusions support a concept of dysfunction of the executive system that facilitates linguistic processing in psychotic disorders. They also support further investigation of a comprehension deficit in psychosis and the use of discourse analysis as a diagnostic tool in this heterogeneous disease.