This literature review aimed to summarize the scientific knowledge concerning the links between psychosocial functioning and social cognition. Social cognition, and particularly Theory of Mind, is strongly disturbed in patients with schizophrenia. There were strong arguments that psychosocial functioning was more strongly associated with Theory of Mind than with neurocognition (defined as nonsocial information processing in contrast to social cognition). The functional capacity mediated this influence. Moreover, longitudinal studies suggested a unidirectional causal pathway with primary neurocognitive disorders leading to secondary deficits in social cognition, which in turn led to disturbances in psychosocial functioning. Studies using structural equation modelling showed that positive, negative and disorganization symptoms were associated with disturbances in psychosocial functioning. Regarding negative symptoms and disorganization, the influences were mediated by social cognition. The influence of positive symptoms on psychosocial functioning was independent of social cognition. This literature review suggests that social cognitive remediation in patients with should improve the psychosocial functioning in patients with schizophrenia.