Several recent studies have provided direct evidence for the link between posttraumatic stress disorder (PTSD) and psychosis. Patients with psychotic disorders are known to be at a higher risk of traumatization and PTSD. Additionally, preclinical and clinical data suggest that the effects of trauma exposure on neural networks may provide a common diathesis for disorders like PTSD and schizophrenia. This article reviews evidence on a) the magnitude of association between PTSD and psychosis, b) the causal mechanisms implicated, and c) treatment considerations relevant to this association. A comprehensive MEDLINE search was conducted, and articles pertinent to epidemiological, clinical, and treatment aspects of comorbid PTSD and psychosis were identified. High rates of PTSD characterize patients with severe mental illness. Psychotic phenomena may also be a relatively common manifestation in patients with chronic PTSD. However, in clinical settings, the diagnosis is often missed, and few systematic guidelines exist for the identification and treatment of these comorbidities. Future neurobiological and treatment studies may be useful in better informing the clinical management of these subgroups.