OBJECTIVE: The mechanisms by which internalized stigma affects outcomes related to recovery among people with severe mental illness have yet to be explicitly studied. This study empirically evaluated a model for how internalized stigma affects important outcomes related to recovery. METHODS: A total of 102 persons with schizophrenia spectrum disorders completed measures of internalized stigma, awareness of mental illness, psychiatric symptoms, self-esteem, hopefulness, and coping. Path analyses tested a predicted model and an alternative model for the relationships between the variables. RESULTS: Results from model 1 supported the view that internalized stigma increases avoidant coping, active social avoidance, and depressive symptoms and that these relationships are mediated by the impact of internalized stigma on hope and self-esteem. Results from model 2 replicated significant relationships from model 1 but also supported the hypothesis that positive symptoms may influence hope and self-esteem. CONCLUSIONS: Findings from two models supported the hypothesis that internalized stigma affects hope and self-esteem, leading to negative outcomes related to recovery. It is recommended that interventions be developed and tested to address the important effects of internalized stigma on recovery.