Schizophrenia is an often chronic mental disorder that is characterized by significant impairments in cognition and functioning. Marked deficits have been observed in social and non-social cognitive domains (Heinrichs & Zakzanis, 1998; Penn, Corrigan, Bentall, Racenstein, & Newman, 1997), which cross-sectional and longitudinal studies have found to be significant and consistent predictors of functional outcome (Couture, Penn, & Roberts, 2006; Green, Kern, Braff, & Mintz, 2000). Such findings have fueled arguments for the treatment of cognitive impairments in schizophrenia as a key mechanism for improving functioning in the disorder (Green & Nuechterlein, 1999; Hogarty & Flesher, 1992). While the pharmacologic treatment of cognitive impairments in schizophrenia has produced limited improvements (Keefe et al., 2007; Sergi et al., 2007), a number of psychosocial cognitive rehabilitation approaches have emerged as effective methods for addressing cognitive deficits in the disorder (McGurk, Twamley, Sitzer, McHugo, & Mueser, 2007). One integrated approach to the remediation of social and non-social cognitive impairments in schizophrenia that has been shown to be particularly effective at improving cognition and functioning in the disorder is Cognitive Enhancement Therapy (CET; Hogarty & Greenwald, 2006). In the initial CET study with chronically ill patients, we demonstrated that CET resulted in marked improvements in processing speed, neurocognition, and social cognition, as well as social adjustment (Hogarty et al., 2004). A one-year follow-up study also showed that these improvements could be maintained after the completion of treatment (Hogarty, Greenwald, & Eack, 2006). Recently, we tested the effects of CET as an early intervention approach with 58 early course schizophrenia outpatients, and again found substantial improvements in neurocognition (d = .46) and social cognition (d = 1.55), but not processing speed, which was relatively preserved among early course patients. In addition, large (d = 1.53) and broad functional improvements were observed in vocational functioning, activities of daily living, and other domains of social adjustment (Eack et al., 2009; Eack et al., in press). The effects of CET and other cognitive rehabilitation approaches on functional outcome strongly support the treatment of cognition as a critical mechanism for functional improvement in schizophrenia. Unfortunately, few studies have explicitly tested the degree to which improvements in cognition contribute to functional improvement. In the initial CET study with chronically ill patients, we found that improvements in processing speed served as a significant partial mediator of CET effects on social adjustment (Hogarty, Greenwald, & Eack, 2006). Wykes and colleagues studied Cognitive Remediation Therapy among early-onset patients and found that improvements in executive functioning, working memory, and planning were related to improved social behavior (Wykes et al., 2007); however, previous studies of that intervention with chronic patients did not demonstrate a link between changes in neurocognitive domains and functioning (Reeder et al., 2004; Reeder et al., 2006). To date, no studies have examined the effect of both improved neurocognition and social cognition on functional outcome during cognitive rehabilitation in schizophrenia. Having recently found substantial functional benefits of CET in early schizophrenia during a two year randomized trial (Eack et al., 2009), we now examine the degree to which social-cognitive and neurocognitive enhancement during this trial served as active mechanisms of functional improvement in these early course patients. It was hypothesized that both improved neurocognition and social cognition would contribute to improvements in functioning, and mediate the differential effects of CET on functional outcome. Unlike our initial CET study (Hogarty, Greenwald, & Eack, 2006), the mediational effects of improved processing speed were not investigated, as this sample of early course patients demonstrated relatively preserved performance in processing speed that did not change with treatment (Eack et al., 2009).