Self-efficacy, defined as the confidence one has in the ability to perform a behavior or specific task, has been introduced as a crucial motivational factor for successfully carrying out social and everyday living skills (Bandura, 1977, 1997). Few studies have assessed its role in functioning in schizophrenia. The current study was designed to investigate whether degree of illness insight determined whether self-efficacy was a mediator of the relationship between two key illness features, negative symptoms and cognition, and functional skills. Sixty-nine individuals with schizophrenia were administered measures of self-efficacy, cognition, symptoms, insight and performance-based measure of everyday living and social skill. Results revealed that self-efficacy was only linked to measures of functional skills when illness insight was intact. There was evidence of moderation of confounding effects such that when self-efficacy was controlled, the relationship between negative symptoms and measures of everyday life skills became non-significant, but only when illness insight was intact. These findings emphasize the importance of including illness insight in models of the role of self-efficacy in functioning in schizophrenia.