Abstract Background Many individuals with schizophrenia experience remission of prominent positive symptoms but continue to experience impairments in real world functioning. Residual negative and depressive symptoms may have a direct impact on functioning and impair patients’ ability to use the cognitive and functional skills that they possess (competence) in the real world (functional performance). Methods 136 individuals (100 men, 36 women) with schizophrenia were classified as having primarily positive symptoms, primarily negative symptoms, primarily depressive symptoms, or undifferentiated symptom profiles. Performance based measures of cognition and adaptive and interpersonal functional competence were used, along with ratings of real world behavior by high contact clinicians. Assessments were performed at baseline and at an 18-month follow-up. Results The relationships between neurocognition and capacity / performance were not moderated by symptom group ps>.091; neurocognition predicted capacity and performance for all groups ps<.001. The relationship between adaptive competence and adaptive performance was moderated by symptom group, ps<.01, such that baseline competence only predicted future performance ratings for participants with primarily positive or undifferentiated symptoms, and not for individuals with primarily negative or depressive symptoms. This same moderation effect was found on the relationship between interpersonal competence and interpersonal performance, ps<.002. Conclusions Residual negative and depressive symptoms are distinct constructs that impede the use of functional skills in the real world. Depressive symptoms are often overlooked in schizophrenia but appear to be an important factor that limits the use of functional ability in real world environments.