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Little is known about the relationship between mental illness and literacy despite both being prevalent problems. We examine whether literacy varies by psychiatric diagnoses. Interviews and chart reviews (N = 100) were conducted in a behavioral health outpatient clinic. The relationships among sociodemographics, rapid estimate of adult literacy in medicine, measures of verbal and visual intellectual abilities, and psychiatric diagnoses were examined. The mean rapid estimate of adult literacy in medicine score was 55.9 which is equivalent to below an eighth grade literacy level. Psychotic disorder (p = 0.03) was associated with limited literacy, and substance abuse (p = 0.003) and PTSD (p = 0.07) were associated with higher literacy in bivariate analyses. These diagnoses were further examined in multivariate models. Limitations include the small sample size and the over-representation of people with high levels of education. Increasing our understanding of the relationships between health literacy and psychiatric disorders will help inform the development of appropriate psychiatric care and better outcomes.