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Background: The aim of the study was to investigate functional impairment and its relationship to illness severity in a sample of patients with a diagnosis of mood or anxiety disorder during inpatient treatment and 1 year after discharge. Methods: Two hundred thirty-nine inpatients with primary diagnoses of mood or anxiety disorders were assessed at baseline and at follow-up by a range of validated instruments. Mini-ICF-APP was used for the assessment of functional impairment, BDI-II for the assessment of clinical symptoms and remission. Sample characteristics and measures of impairment at baseline and at follow-up were analysed descriptively. Symptomatically remitted and non-remitted patients were compared with regard to capacity limitations. Results: Initially, the sample showed considerable impairment in many capacities, particularly endurance, spontaneous activities, structuring of tasks, competency and flexibility. After 1 year, all capacities significantly improved. The level of impairment was correlated with employment status and severity of clinical symptoms. About 50% of the patients remitted in clinical symptomatology. Retrospectively, the remitted and the unremitted did not differ in functional impairment at baseline but there were considerable differences at follow-up. Conclusions: Mini-ICF-APP is a useful instrument to monitor functional status and change in psychiatric samples, complementing the usual focus on symptom reduction. [ABSTRACT FROM AUTHOR]