Stigma limits life opportunities of persons with mental illness. Self-stigma, the internalization of negative stereotypes, undermines empowerment and could hinder recovery. Here we examined self-stigma’s effect on recovery among 222 disability pensioners with mental illness over 2 years, controlling for age, gender, symptoms and recovery at baseline measured by the Recovery Assessment Scale. More self-stigma at baseline was associated with a significant decrease in recovery after 1 year (not significant after 2 years). An increase of self-stigma from baseline to follow-up predicted less recovery 1 and 2 years later. Interventions that reduce self-stigma could therefore improve recovery.