OBJECTIVE Several studies have described volumetric brain abnormalities in first-episode psychosis. The extent to which these differ in patients with schizophrenia and affective psychoses, or are related to subsequent clinical outcome, is unclear. We examined volumetric magnetic resonance imaging (MRI) abnormalities in young patients with a first episode of psychosis, and compared these volumetric abnormalities in patients with schizophrenia versus affective psychosis. We then assessed whether baseline MRI abnormalities in the entire sample predicted subsequent clinical outcome. METHODS A total of 28 adolescent patients with first-episode psychosis and 20 age-matched healthy volunteers were scanned using a 1.5 T scanner. MRI data were processed and analysed using voxel-based morphometry (VBM). We assessed clinical outcome three years after the initial scan. RESULTS Patients had smaller grey matter (GM) volumes than controls in frontal, insular, parietal, and cerebellar cortex. Patients with an affective psychosis had greater GM volume in the right posterior cingulate than both controls and patients with schizophrenia, but less GM volume in the left cerebellum and insula. In the sample as a whole, smaller right hippocampus GM volume was associated with poor clinical outcome at three-year follow-up. CONCLUSIONS Volumetric brain abnormalities are evident in young adults presenting with a first episode of both affective psychoses and schizophrenia, but there are also significant differences between these two patient groups. Clinical outcome after the first episode may be related to the severity of volumetric abnormalities at presentation.