Cognitive dysfunction is the most important determinant for the recovery in schizophrenia and bipolar disorder. Cognitive dysfunction serves as an endophenotype although it may be a consequence of drug treatments. In schizophrenia starting from the first episode, pronounced cognitive defects such as cognitive flexibility, inhibition, verbal fluency, verbal memory and visual-motor processing are observable. These cognitive defects remain stable in the chronic phase of schizophrenia. On the other hand, cognitive dysfunctions in bipolar disorder patients have a heterogeneous pattern. One group of patients show no evidence of cognitive dysfunction while one group has limited dysfunction (of processing speed, attention, verbal learning and social cognition) and another one has wide spread dysfunctions as seen in schizophrenia. Despite its importance, no satisfactory results have been achieved in the treatment of cognitive dysfunctions in schizophrenia and bipolar disorder. In this article, the evaluation and treatment of the most frequent cognitive dysfunctions of schizophrenia and bipolar disorder are reviewed.