Although the insula and temporal pole (TP) of paralimbic regions are important in both affective and cognitive processing, it is not well known whether gray matter volume (GMV) abnormalities in these regions show post-onset progression and differentially affect first-episode schizophrenia (FESZ) and first-episode affective psychosis (FEAFF) patients. To determine whether there are initial and progressive GMV deficits in insula and TP in FESZ and FEAFF (mainly manic) patients, their relative specificity to FESZ or FEAFF, and relationship to symptoms, we conducted a naturalistic study at first hospitalization for psychosis and follow-up ~1.5 years later. Initial 1.5T magnetic resonance imaging (MRI) scans and follow-up scans were on the same scanner. Twenty-two FESZ, 23 FEAFF, and 23 healthy control (HC) subjects were group matched for age, gender, parental socioeconomic status, and handedness. At first hospitalization, FESZ showed significantly smaller bilateral insular GMV compared with FEAFF, and smaller left TP GMV compared with FEAFF and HC. Moreover, on 1.5 years follow-up, FESZ showed progressive GMV decreases in bilateral insula compared with FEAFF and HC, and in TP GMV compared with HC. In contrast, FEAFF showed no progression. Progression of FESZ GMV in both insula and TP was inversely associated with changes in the overall Brief Psychiatric Rating Scale symptom score, indicating less improvement or worsening of symptoms.