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Abstract Background Functional impairment is a major concern among those presenting to youth mental health services and can have a profound impact on long-term outcomes. Early recognition and prevention for those at risk of functional impairment is essential to guide effective youth mental health care. Yet, identifying those at risk is challenging and impacts the appropriate allocation of indicated prevention and early intervention strategies. Methods We developed a prognostic model to predict a young person’s social and occupational functional impairment trajectory over 3 months. The sample included 718 young people (12–25 years) engaged in youth mental health care. A Bayesian random effects model was designed using demographic and clinical factors and model performance was evaluated on held-out test data via 5-fold cross-validation. Results Eight factors were identified as the optimal set for prediction: employment, education, or training status; self-harm; psychotic-like experiences; physical health comorbidity; childhood-onset syndrome; illness type; clinical stage; and circadian disturbances. The model had an acceptable area under the curve (AUC) of 0.70 (95% CI, 0.56–0.81) overall, indicating its utility for predicting functional impairment over 3 months. For those with good baseline functioning, it showed excellent performance (AUC = 0.80, 0.67–0.79) for identifying individuals at risk of deterioration. Conclusions We developed and validated a prognostic model for youth mental health services to predict functional impairment trajectories over a 3-month period. This model serves as a foundation for further tool development and demonstrates its potential to guide indicated prevention and early intervention for enhancing functional outcomes or preventing functional decline.