Development of payment systems for mental health services has been hindered by limited evidence for the utility of diagnosis or symptoms in predicting costs of care. We investigated the utility of functioning information in predicting costs for patients with mood and anxiety disorders. This was a prospective cohort study involving 102 adult patients attending a tertiary referral specialist clinic for mood and anxiety disorders. The main outcome was total costs, calculated by applying unit costs to healthcare use data. After adjusting for covariates, a significant total costs association was yielded for functioning (eβ=1.02; 95% confidence interval: 1.01–1.03), but not depressive symptom severity or anxiety symptom severity. When we accounted for the correlations between the main independent variables by constructing an abridged functioning metric, a significant total costs association was again yielded for functioning (eβ=1.04; 95% confidence interval: 1.01–1.09), but not symptom severity. The utility of functioning in predicting costs for patients with mood and anxiety disorders was supported. Functioning information could be useful within mental health payment systems.