Schizophrenia is associated with marked functional impairment and low levels of subjective happiness. The aim of the current study was to evaluate the relationship between subjective happiness and functioning in patients with schizophrenia, while considering the role of cognitive functioning. Methods: In total, 69 schizophrenia patients and 87 matched healthy controls participated in the study. Patients’ clinical status was assessed, and a series of self-report questionnaires were administered to both patients and healthy controls to measure subjective happiness, satisfaction with life, well-being, functioning, and cognitive impairment. A multiple linear regression model identified significant predictors of subjective happiness and related constructs. Results: Schizophrenia participants endorsed lower levels of happiness and well-being, and higher perceived stress compared to healthy controls. In schizophrenia patients, there was an inverse and significant correlation (r = −0.435; p = 0.013) between subjective happiness and functioning in a subgroup of patients without cognitive impairment. This correlation was not significant (r = −0.175; p = 0.300) in the subgroup with cognitive impairment. When controlling for other clinical variables (by multiple lineal regression), the severity of symptoms and level of insight failed to demonstrate significant relationships with happiness; meanwhile, perceived stress and some specific cognitive dominions (as verbal learning and processing speed) were associated with satisfaction of life of the patients. Conclusions: The relationship between subjective happiness and functioning in schizophrenia patients was influenced by level of cognitive impairment. Findings from this study suggest that rehabilitation programs may improve recovery outcomes with a focus on subjective happiness and functioning, especially in patients with cognitive impairment. Future research is needed to better understand the complex interplay between subjective happiness, functioning, and cognitive impairment in patients with schizophrenia.