Traumatic life events, as defined by DSM-IV, are common among persons with severe mental illnesses (SMI) such as schizophrenia. Limited evidence suggests concomitantly high rates of posttraumatic stress disorder (PTSD) in this population. However, conceptual models do not exist for understanding the interactions between trauma, PTSD, and SMI. We propose a model, which is an extension of the stress-vulnerability model, in which PTSD is hypothesized to mediate the negative effects of trauma on the course of SMI. Our model posits that PTSD influences psychiatric disorders both directly, through the effects of specific PTSD symptoms including avoidance, overarousal, and re-experiencing the trauma, and indirectly, through the effects of common correlates of PTSD such as retraumatization, substance abuse, and difficulties with interpersonal relationships. We discuss the evidence supporting this model, and consider several intervening variables that are hypothesized to moderate the proposed relationships between PTSD and SMI, including social support, coping and competence, and antisocial personality disorder. Theoretical and clinical implications of the model are considered, as well as several methodological and nosological issues. We conclude with a brief discussion of directions for future research aimed at evaluating components of the model.