Language disturbance has a central role in the presentation of psychotic disorders however its relationship with functioning requires further clarification, particularly in first episode psychosis (FEP). Both language disturbance and functioning can be evaluated with clinician-rated and performance-based measures. We aimed to investigate the concurrent association between clinician-rated and performance-based measures of language disturbance and functioning in FEP. We assessed 108 individuals presenting to an Early Intervention in Psychosis Service in Ireland. Formal thought disorder (FTD) dimensions and bizarre idiosyncratic thinking (BIT) were rated with structured assessment tools. Functioning was evaluated with a performance-based instrument, a clinician-rated measure and indicators of real-world functioning. The disorganisation dimension of FTD was significantly associated with clinician-rated measures of occupational and social functioning (Beta=−0.19, P<0.05 and Beta=−0.31, P<0.01, respectively). BIT was significantly associated with the performance-based measure of functioning (Beta=−0.22, P<0.05). Language disturbance was of less value in predicting real-world measures of functioning. Clinician-rated and performance-based assessments of language disturbance are complementary and each has differential associations with functioning. Communication disorders should be considered as a potential target for intervention in FEP, although further evaluation of the longitudinal relationship between language disturbance and functioning should be undertaken.