Psychiatric disorders are now the most common reason for long-term sickness absence. The associated loss in productivity and the payment of disability benefits places a substantial burden on the economies of many developed countries. The occupational dysfunction associated with psychiatric disorders can also lead to poverty and social isolation. As a result the area of work and psychiatric disorders is a high priority for policymakers. There are two main agendas: for many researchers and clinicians the focus is on the need to overcome stigma and ensure people with severe psychiatric disorders have meaningful work; however the public health agenda predominantly relates to the more common disorders such as depression and anxiety, which contribute a greater burden of disability benefits and pensions. In this review we attempt to address this second agenda. The relatively sparse evidence available reveals a complex field with significant interplay between medical, psychological social and cultural factors. Sick leave can be a 'process' as well as an 'event'. In this review we propose a staged model where different risk and protective factors contribute to the onset of psychiatric disorders in the working population, the onset of short-term sickness absence, and the transition from short- to long-term absence. We also examine strategies to manage psychiatric disorder in the workforce with a view towards returning the employee to work. Our aim in this review is to highlight the complexity of the area, to stimulate debate and to identify important gaps in knowledge where further research might benefit both patients and wider society.