Over the last two decades, there has been a rapid increase of studies testing the efficacy and acceptability of virtual reality in the assessment and treatment of mental health problems. This systematic review was carried out to investigate the use of virtual reality in the assessment and the treatment of psychosis. Web of Science, PsychInfo, EMBASE, Scopus, ProQuest and PubMed databases were searched, resulting in the identification of 638 articles potentially eligible for inclusion; of these, 50 studies were included in the review. The main fields of research in virtual reality and psychosis are: safety and acceptability of the technology; neurocognitive evaluation; functional capacity and performance evaluation; assessment of paranoid ideation and auditory hallucinations; and interventions. The studies reviewed indicate that virtual reality offers a valuable method of assessing the presence of symptoms in ecologically valid environments, with the potential to facilitate learning new emotional and behavioural responses. Virtual reality is a promising method to be used in the assessment of neurocognitive deficits and the study of relevant clinical symptoms. Furthermore, preliminary findings suggest that it can be applied to the delivery of cognitive rehabilitation, social skills training interventions and virtual reality-assisted therapies for psychosis. The potential benefits for enhancing treatment are highlighted. Recommendations for future research include demonstrating generalisability to real-life settings, examining potential negative effects, larger sample sizes and long-term follow-up studies. The present review has been registered in the PROSPERO register: CDR 4201507776.