OBJECTIVE: This study explored the relationship between the functional skills of clients with severe mental disorder and the benefits to the client and society as reflected by residential and vocational status, self-efficacy, self-esteem, and life satisfaction. METHODS: Relationships between various outcome variables and the demographic and clinical characteristics and staff ratings of the functional skills of 139 clients at three psychosocial rehabilitation programs for adults with severe mental disorders were analyzed using correlational techniques. The outcome variables considered were the clients' level of independence in their residential and vocational settings and their levels of self-esteem, self-efficacy, and satisfaction with life. RESULTS: Ratings of functional skills correlated positively with clients' levels of residential and vocational independence and with self-efficacy, but were unrelated to self-esteem and life satisfaction. Age, education, work and hospitalization history, psychiatric diagnosis, and length of program membership were also related to these outcome measures. Skill level remained the strongest predictor of residential and vocational status after demographic and diagnostic factors were controlled for. CONCLUSIONS: Clients' functional skills have a strong, positive relationship with their level of residential and vocational independence, and skill level is a better predictor of benefits to clients and society than are demographic and diagnostic variables.