Although deficits in facial affect processing have been reported in schizophrenia as well as in borderline personality disorder (BPD), these disorders have not yet been directly compared on facial affect labeling. Using degraded stimuli portraying neutral, angry, fearful and angry facial expressions, we hypothesized more errors in labeling negative facial expressions in patients with schizophrenia compared to healthy controls. Patients with BPD were expected to have difficulty in labeling neutral expressions and to display a bias towards a negative attribution when wrongly labeling neutral faces. Patients with schizophrenia (N = 57) and patients with BPD (N = 30) were compared to patients with somatoform disorder (SoD, a psychiatric control group; N = 25) and healthy control participants (N = 41) on facial affect labeling accuracy and type of misattributions. Patients with schizophrenia showed deficits in labeling angry and fearful expressions compared to the healthy control group and patients with BPD showed deficits in labeling neutral expressions compared to the healthy control group. Schizophrenia and BPD patients did not differ significantly from each other when labeling any of the facial expressions. Compared to SoD patients, schizophrenia patients showed deficits on fearful expressions, but BPD did not significantly differ from SoD patients on any of the facial expressions. With respect to the type of misattributions, BPD patients mistook neutral expressions more often for fearful expressions compared to schizophrenia patients and healthy controls, and less often for happy compared to schizophrenia patients. These findings suggest that although schizophrenia and BPD patients demonstrate different as well as similar facial affect labeling deficits, BPD may be associated with a tendency to detect negative affect in neutral expressions.