The measurement of functional capacity in mental illness is an important recent development. Determination of functional capacity may serve as a surrogate marker for real-world functioning, thereby aiding clinicians in making important treatment determinations. This article provides an overview of a model of functioning, discusses the various areas of functioning relevant to real-world performance in persons with mental illness, and reviews existing measures that assess functional capacity. Limitations of existing methods of assessing functional capacity are discussed, and future areas of research are suggested.