Individuals with schizophrenia (SZ) and bipolar disorder (BD) show disruptions in self-referential gaze perception--a social perceptual process related to symptoms and functioning. However, our current mechanistic understanding of these dysfunctions and relationships is imprecise. The present study used mathematical modeling to uncover cognitive processes driving gaze perception abnormalities in SZ and BD, and how they relate to cognition, symptoms, and social functioning. We modeled the behavior of 28 SZ, 38 BD, and 34 controls (HC) in a self-referential gaze perception task using drift-diffusion models (DDM) parameterized to index key cognitive components: drift rate (evidence accumulation efficiency), drift bias (perceptual bias), start point (expectation bias), threshold separation (response caution), and non decision time (encoding/motor processes). Results revealed that aberrant gaze perception in SZ and BD was driven by less efficient evidence accumulation, perceptual biases predisposing self-referential responses, and greater caution (SZ only). Across SZ and HC, poorer social functioning was related to greater expectation biases. Within SZ, perceptual and expectancy biases were associated with hallucination and delusion severity, respectively. These findings indicate that diminished evidence accumulation and perceptual biases may underlie altered gaze perception in patients and that SZ may engage in compensatory cautiousness, sacrificing RT to preserve accuracy. Moreover, biases at the belief and perceptual levels may relate to symptoms and functioning. Computational modeling can, therefore, be used to achieve a more nuanced, cognitive process-level understanding of the mechanisms of social cognitive difficulties, like gaze perception, in individuals with SZ and BD.