Psychotic experiences are far more common in the population than psychotic disorder. They are associated with a number of adverse outcomes but there has been little research on associations with functioning and distress. We wished to investigate functioning and distress in a community sample of adolescents with psychotic experiences. Two hundred and twelve school-going adolescents were assessed for psychotic experiences, mental distress associated with these experiences, global (social/occupational) functioning on the Children’s Global Assessment Scale, and a number of candidate mediator variables, including psychopathology, suicidality, trauma (physical and sexual abuse and exposure to domestic violence) and neurocognitive functioning. Seventy five percent of participants who reported psychotic experiences reported that they found these experiences distressing (mean score for severity of distress was 6.9 out of maximum 10). Participants who reported psychotic experiences had poorer functioning than participants who did not report psychotic experiences (respective means: 68.6, 81.9; OR = 0.25, 95% CI = 0.14-0.44). Similarly, participants with an Axis-1 psychiatric disorder who reported psychotic experiences had poorer functioning than participants with a disorder who did not report psychotic experiences (respective means: 61.8, 74.5; OR = 0.28, 95% CI = 0.12-0.63). Candidate mediator variables explained some but not all of the relationship between psychotic experiences and functioning (OR = 0.48, 95% CI = 0.22-1.05, P < 0.07). Young people with psychotic experiences have poorer global functioning than those who do not, even when compared with other young people with psychopathology (but who do not report psychotic experiences). A disclosure of psychotic experiences should alert treating clinicians that the individual may have significantly more functional disability than suggested by the psychopathological diagnosis alone.