Social cognitive deficits are promising treatment targets for new interventions to improve functional outcome in schizophrenia. A few preliminary studies of inpatients support the feasibility of improving social cognition through psychosocial interventions. This clinical trial evaluated a new 12-session social cognitive skills training program designed to address four aspects of social cognition (affect perception, social perception, attributional style, Theory of Mind) in outpatients with psychosis, a population for whom such interventions will likely be very useful. Thirty-one clinically stabilized outpatients were randomly assigned to a social cognition skills training intervention or a time-matched control condition (illness self-management and relapse prevention skills training), and completed pre- and post-treatment assessments of social cognition, neurocognition, and symptoms. The social cognition group demonstrated a large, significant improvement in facial affect perception, which was not present in the control group. This improvement was independent of changes in basic neurocognitive functioning or symptoms. Results support the efficacy of a social cognitive intervention for community-dwelling outpatients and encourage further development of this treatment approach to achieve broader improvements in social cognition and generalization of treatment gains.