Background: Neurocognitive and functional outcome deficits have long been acknowledged in schizophrenia and neurocognition has been found to account for functional disability to a greater extent than psychopathology. Much of the variance in functional outcome however still remains unexplained and metacognition may mediate the relationship between neurocognition, functional capacity, and self-reported social and occupational function. Method: 80 first-episode psychosis participants were recruited and completed measures of neurocognition (memory, executive function and IQ), metacognition (Beck Cognitive Insight Scale, Metacognitive Awareness Interview), psychopathology (PANSS), and both functional capacity (UPSA) and real-life social and occupational function (The Time Use Survey). Path analyses investigated the relationships between variables through Structural Equation Modelling. Results: A series of path models demonstrated that metacognition partially mediates the relationship between neurocognition and functional capacity, and fully mediates the relationship between functional capacity and social and occupational function. Conclusion: The present study findings identify that metacognition may be critical to translating cognitive and functional skills into real-world contexts, and this relationship is found at early stages of illness. Understanding how individuals translate cognitive and functional skills into the real-world (the competence-performance gap) may offer valuable guidance to intervention programmes. This finding is important to models of recovery as it suggests that intervention programmes that focus on enhancing metacognition abilities may have a greater impact than traditional rehabilitation programmes focusing on cognitive abilities, on social and occupational outcomes.