OBJECTIVE Given the fundamental role of thought disorder in schizophrenia, subtle communication disturbance may be a valuable predictor of subsequent development of psychosis. Here we examined the contribution of thought and communication disturbance to the prediction of outcome in adolescents identified as putatively prodromal for psychosis. METHODS Transcribed speech samples were elicited from 105 adolescents (54 identified as being at clinical high risk for a first episode of psychosis [CHR], and 51 demographically comparable comparison subjects) and coded for formal thought disorder (FTD) and linguistic cohesion. We then examined the association of baseline FTD/cohesion with conversion to psychosis and social and role outcome at follow-up, approximately 1 year later. RESULTS At baseline, CHR patients who subsequently converted to psychosis (CHR+) showed an elevated rate of illogical thinking and poverty of content (POC) in their speech, relative to both typically developing controls and CHR patients who did not convert to psychosis (CHR-). CHR+ youth also used significantly less referential cohesion at baseline, indicating that they provide fewer references to persons, objects, or events mentioned in preceding utterances. Multiple regression models indicated that, among measures of FTD/cohesion, illogical thinking was uniquely predictive of subsequent conversion to psychosis, whereas POC and referential cohesion were significant predictors of social and role functioning, respectively. CONCLUSIONS Despite the absence of fully psychotic symptoms, putatively prodromal individuals evidence signs of communication disturbance that are qualitatively similar to those seen in schizophrenia and are predictive of both conversion to psychosis and psychosocial outcome. These findings suggest that FTD measures have prognostic significance for at-risk youth.