The aim was to present the content of the newly developed observer rating scale of work ability – The Occupational Functioning Scale (OFS) – and its basic psychometric properties. Psychiatric disorders cause functional impairment in several domains, including occupational functioning. The assessment of work-related functioning is often neglected in psychiatric research, partly due to a lack of reliable and valid instruments. The validity of OFS was evaluated by comparing it with other work ability measures (SAS-work, Work Ability Index, sickness absence) and to non-work-ability related measures [Inventory of Interpersonal Problems (IIP), Symptom Check List – General Symptomatic Index (SCL-90-GSI)] in 150 patients with depressive or anxiety disorders. Reliability was determined by 39 videotaped interviews rated by four judges. OFS showed excellent inter-rater reliability (intraclass correlation = 0.91) and good criterion validity by being more strongly related to other scales of occupational functioning (∣r∣ = 0.39–0.47) than to measures of general distress (SCL-90-GSI) and interpersonal problems (IIP)(∣r∣ = 0.26 and 0.12). OFS is a simple, reliable and clinically meaningful instrument for assessment of work ability in depressive and anxiety disorders.