BACKGROUND: It is unclear if research findings support clinical opinion that cannabis use leads to worse outcomes in people with psychosis, or whether this impression is confounded by other factors. AIMS: To systematically review the evidence pertaining to whether cannabis affects outcome of psychotic disorders. METHOD: We searched 10 relevant databases (to November 2006), reference lists of included studies and contacted experts. We included 13 longitudinal studies from 15,303 references. Data extraction and quality assessment were conducted independently and in duplicate. RESULTS: Cannabis use was consistently associated with increased relapse and non-adherence. Associations with other outcome measures were more disparate. Few studies adjusted for baseline illness severity, and most made no adjustment for alcohol, or other potentially important confounders. Adjusting for even a few confounders often resulted in substantial attenuation of results. CONCLUSIONS: Confidence that most associations reported were specifically due to cannabis is low. Despite clinical opinion, it remains important to establish whether cannabis is harmful, what outcomes are particularly susceptible, and how such effects are mediated. Studies to examine this further are eminently feasible.