Mental health disorders are a leading cause of disability worldwide. Challenges such as disease heterogeneity, incomplete characterization of the targets of existing drugs and a limited understanding of functional interactions of complex genetic risk loci and environmental factors have compromised the identification of novel drug candidates. There is a pressing clinical need for drugs with new mechanisms of action which address the lack of efficacy and debilitating side effects of current medications. Here we discuss a novel strategy for neuropsychiatric drug discovery which aims to address these limitations by identifying disease-related functional responses (‘functional cellular endophenotypes’) in a variety of patient-derived cells, such as induced pluripotent stem cell (iPSC)-derived neurons and organoids or peripheral blood mononuclear cells (PBMCs). Disease-specific alterations in cellular responses can subsequently yield novel drug screening targets and drug candidates. We discuss the potential of this approach in the context of recent advances in patient-derived cellular models, high-content single-cell screening of cellular networks and changes in the diagnostic framework of neuropsychiatric disorders.