The ability of electrodermal variables to predict negative symptoms and functional outcome over a 1-year period in schizophrenia was investigated in 78 young, recent-onset outpatients. Patients were stabilized on standardized medication and largely free of psychotic symptoms. Higher levels of both tonic (skin conductance level, nonspecific skin conductance response rate) and phasic (number of skin conductance orienting responses) activity were associated with more negative symptoms and with a combination of poorer social and occupational outcome at 1-year follow-up. This pattern was seen in both male and female patients, and in older and younger patients. Results are interpreted as suggesting that high levels of arousal and overreactivity to the environment may interfere with efficient cognitive processing in schizophrenia, contributing to poor outcome, and that negative symptoms might partially serve as a means of coping with overarousal.