The purpose of this study was to examine relationships between neurocognition, theory of mind, and community functioning in a sample of 43 outpatients with serious mental illness (SMI). Relationships between baseline values and changes over time were analyzed using multilevel modeling. The results showed that a) neurocognition and theory of mind were each associated with community functioning at baseline, b) community functioning improved during approximately 12 months of treatment, c) greater improvement in neurocognition over time predicted higher rates of improvement in community functioning, d) theory of mind did not predict change in community functioning after controlling for neurocognition, and e) the effect of change in neurocognition on community functioning did not depend on the effect of baseline neurocognition. This study provides empirical support that individuals with SMI may experience improvement in community functioning, especially when they also experience improvement in neurocognition. Limitations and recommendations for future research are discussed.