Although functional capacity is typically diminished, there is substantial heterogeneity in functional outcomes in schizophrenia. Motivational factors likely play a significant role in bridging the capacity-to-functioning gap. Self-efficacy theory suggests that although some individuals may have the capacity to perform functional behaviors, they may or may not have confidence they can successfully perform these behaviors in real-world settings. We hypothesized that the relationship between functional capacity and real-world functioning would be moderated by the individual’s self-efficacy in a sample of 97 middle-aged and older adults with schizophrenia (mean age = 50.9 ± 6.5 years). Functional capacity was measured using the Brief UCSD Performance-based Skills Assessment (UPSA-B), self-efficacy with the Revised Self-Efficacy Scale, and Daily Functioning via the Specific Level of Functioning (SLOF) scale and self-report measures. Results indicated that when self-efficacy was low, the relationship between UPSA-B and SLOF scores was not significant (P = .727). However, when self efficacy was high, UPSA-B scores were significantly related to SLOF scores (P = .020). Similar results were observed for self-reported social and work functioning. These results suggest that motivational processes (ie, self-efficacy) may aid in understanding why some individuals have the capacity to function well but do not translate this capacity into real-world functioning. Furthermore, while improvement in capacity may be necessary for improved functioning in this population, it may not be sufficient when motivation is absent.