The Hierarchical Taxonomy of Psychopathology (HiTOP) arranges phenotypes of mental disorders based on empirical covariation, ranging from narrowly defined symptoms to higher-order spectra of psychopathology. Since the introduction of personality functioning (PF) in DSM-5 and ICD-11, several studies have identified PF as a transdiagnostic predictor of psychopathology. However, the role of PF in the HiTOP classification system has not been systematically examined. This study investigates how PF can be integrated into HiTOP, whether PF accounts for transdiagnostic variance captured in higher-order spectra, and how its predictive value for affective well-being (AWB) and psychosocial impairment (PSI) compares to the predictive value of specific psychopathology. To this end, we examined two years of ambulatory assessed data on psychopathology, PF, PSI, and AWB of N = 27 173 users of a mental health app. Results of bass-ackwards analyses largely aligned with the current HiTOP working model. Using bifactor modeling, aspects of PF were identified to capture most of the internalizing, thought disorder, and externalizing higher order factor variance. In longitudinal prediction analyses employing bifactor-(S-1) modeling, PF explained 58.6% and 30.6% of one-year variance and 33.1% and 23.2% of two-year variance in ambulatory assessed PSI and AWB, respectively. Results indicate that personality functioning may largely account for transdiagnostic variance captured in the higher-order components in HiTOP as well as longitudinal outcomes of PSI and AWB. Clinicians and their patients may benefit from assessing PF aspects such as identity problems or internal relationship models in a broad range of mental disorders. Further, incorporating measures of PF may advance research in biological psychiatry by providing empirically sound phenotypes.