Decades of research have provided robust evidence of cognitive impairments in psychotic disorders. Individuals with schizophrenia appear to be impaired on the majority of neuropsychological tasks, leading some researchers to argue for a “generalized deficit”, in which the multitude of cognitive impairments are the result of a common neurobiological source. One such common mechanism may be an inability to actively represent goal information in working memory as a means to guide behavior, with the associated neurobiological impairment being a disturbance in the function of the dorsolateral prefrontal cortex. Here, we provide a discussion of the evidence for such impairment in schizophrenia, and how it manifests in domains typically referred to as cognitive control, working memory and episodic memory. We also briefly discuss cognitive impairment in affective psychoses, reporting that the degree of impairment is worse in schizophrenia than in bipolar disorder and psychotic major depression, but the profile of impairment is similar, possibly reflecting common mechanisms at the neural level. Given the recent release of the DSM‐5, we end with a brief discussion on assessing cognition in the context of diagnosis and treatment planning in psychotic disorders.