Social functioning is impaired in severe mental disorders despite clinical remission, illustrating the need to identify other mechanisms that hinder psychosocial recovery. Affective lability is elevated and associated with an increased clinical burden in psychosis spectrum disorders. We aimed to investigate putative associations between affective lability and social functioning in 293 participants with severe mental disorders (schizophrenia- and bipolar spectrum), and if such an association was independent of well-established predictors of social impairments. The Affective Lability Scale (ALS-SF) was used to measure affective lability covering the dimensions of anxiety-depression, depression-elation and anger. The interpersonal domain of the Social Functioning Scale (SFS) was used to measure social functioning. Correlation analyses were conducted to investigate associations between affective lability and social functioning, followed by a hierarchical multiple regression and follow-up analyses in diagnostic subgroups. Features related to premorbid and clinical characteristics were entered as independent variables together with the ALS-SF scores. We found that higher scores on all ALS-SF subdimensions were significantly associated with lower social functioning (p < 0.005) in the total sample. For the anxiety-depression dimension of the ALS-SF, this association persisted after controlling for potential confounders such as premorbid social functioning, duration of untreated illness and current symptoms (p = 0.019). Our results indicate that elevated affective lability may have a negative impact on social functioning in severe mental disorders, which warrants further investigation. Clinically, it might be fruitful to target affective lability in severe mental disorders to improve psychosocial outcomes.