Neurocognitive impairment and negative symptoms contribute to functional disability in people with schizophrenia. Yet, a high level of unexplained variability remains after accounting for the role of these factors. This study examined the role of thought disorder, psychological complexity, and interpersonal representations, as measured by the Rorschach, in explaining functional and social skills capacity in 72 middle-aged and older outpatients with schizophrenia (mean age = 51.2 years). Participants responded to the Rorschach administered with the R-Optimized administration instructions and scored with the Rorschach Performance Assessment System. Relationships with neuropsychological performance and psychopathology were also explored. Psychological complexity, which refers to a person's cognitive capacity for problem solving and organizing his or her surroundings, was correlated with functional capacity (r = .30) and social skills capacity (r = .34). Healthy interpersonal representations were correlated with positive social skills (rs = .24–.28). In multiple regression models, psychological complexity accounted for significant variation in functional (β = .23, p = .02) and social skills capacity (β = .35, p < .01) after controlling for neurocognitive functioning and psychopathology. These data suggest that psychological complexity plays a significant role in the functional limitations seen in schizophrenia, above and beyond the contributions of neurocognitive impairment and negative symptoms. Support was also found for the impact of healthy object relations functioning with social functioning. Clinical implications include novel information for future development of cognitive remediation treatment strategies based on a patient's developmental level of psychological capacity and healthy interpersonal schemas.