Background: Parental mental illness has a negative impact on children's mental health. Often, the entire family structure suffers from the consequences of parental illness. Purpose: For future interventions, it is important to examine the impact of specific factors such as parental symptom severity on children's mental health and family functioning. Method: The sample of this study included N = 203 parents with mental illness with a total of N = 309 children. Parents completed questionnaires on symptom severity. Children's mental health symptoms were rated by parents and children and family functioning was assessed from the children's perspective. Results: Mixed linear models showed a significant impact of parental symptom severity on children's mental health from both parents' and children's perspectives. No significant impact of symptom severity on perceived family functioning from the children's perspective was found. Conclusion: Results underline the importance of personalized interventions in terms of parental symptom severity to minimize negative outcomes for children and the whole family.