Neuropsychological deficits seem to be a major predictor of psychosocial outcome in patients with schizophrenia. Second-generation antipsychotics have shown greater promise in treating neuropsychological deficits than conventional antipsychotic drugs. This article summarizes the effect of newer antipsychotics on cognitive functioning and the implications for functional outcome. In this context it also addresses several methodological and conceptional issues that limited the comparison of these studies.