Over the past few decades, there has been increasing interest in the study of social impairment in schizophrenia. However, the concept of social functioning has been poorly defined in the literature. This article highlights the global and multi-factorial nature of social functioning and reviews the theoretical determinants of social dysfunction in schizophrenia. Emphasis is placed on outlining the social cognitive deficits that may occur. The study of social cognition appears particularly promising in elucidating our understanding of the development of social impairment in schizophrenia and has the potential to improve current psychosocial interventions. However, continued advances depend upon the existence of reliable and well-validated measures of social functioning and social cognition. A selection of measures are reviewed in this article in an attempt to highlight the importance of assessing multiple aspects of social functioning in schizophrenia and to assist researchers in the selection of appropriate measures. Future efforts should be directed towards the continued validation of social functioning and social cognitive measures and their adaptation for use in at-risk and early psychosis populations.