This article describes the development and testing of the Functional Recovery tool (FR tool), a short instrument for assessing functional recovery during routine outcome monitoring of people living with serious mental illnesses. To assess functional recovery, mental health professionals conducted semistructured interviews with people living with serious mental illnesses on three areas of social functioning: daily living and self-care, work and study, and social contacts. Functioning in each of these areas over the past 6 months was rated on a 3-point scale: 0 (independent), 1 (partially independent), and 2 (dependent). The dichotomous overall outcome of the tool is defined as independent functioning in all areas. We analyzed interrater and test-retest reliability, sensitivity to change, and correlations with constructs that are assumed to be similar to the FR tool (quality of life in daily living, work, and social contacts) or divergent from it (symptomatic functioning). The FR tool was administered to 840 individuals with serious mental illnesses in Dutch mental health care services, 523 of whom were followed up for 1 year (response rate 62%). The tool was easy to complete and was appropriate for policy evaluation and practice. However, when it was combined with more elaborate instruments, it added little extra clinical information. Interrater and test-retest reliability, convergent and discriminant validity, and sensitivity to change were rated sufficient to good. The FR tool could be a useful measure of functional recovery in addition to current measures of symptomatic remission and personal recovery in routine outcome monitoring. (PsycINFO Database Record (c) 2018 APA, all rights reserved).