Interpersonal trauma and post-traumatic stress disorder (PTSD) in patients with severe mental illness (SMI) negatively affect illness course. Narrative exposure therapy (NET) is effective in vulnerable patient groups, but its efficacy and applicability has not been studied in out-patients with SMI. We aimed to evaluate the efficacy and applicability of NET in SMI on changes in PTSD, dissociation, SMI symptoms, care needs, quality of life, global functioning and care consumption. The study had a single-group, pre-test-post-test, repeated-measures design and was registered in The Netherlands National Trial Register (identifier TR571). Primary outcomes were assessed at pre-treatment (T0), 1 month post-treatment (T1) and 7 months' follow-up (T2), with a structured interview for PTSD and dissociation screening. Secondary outcomes followed routinely SMI measurements and medical data. Mixed models were used for data analysis. The majority of the 23 participants was female (82%). Mean age was 49.9 years (s.d. 9.8) and mean PTSD duration was 24.1 years (s.d. 14.5). Mean PTSD severity decreased from 37.9 at T0 to 31.9 at T1 (-6.0 difference, 95%CI -10.0 to -2.0), and decreased further to 24.5 at T2 (-13.4 difference, 95%CI -17.4 to -9.4). Dissociation, SMI symptoms, duration of contacts, and medication decreased; global functioning increased; and quality of life and perceived needs did not change. Eleven participants were in remission for PTSD at T2, of which five were also in remission for major depression. NET appeared efficacious and applicable to out-patients with SMI and PTSD, and was well tolerated.