We measured P300, an event-related potential, in subjects with at-risk mental states (ARMS) and aimed to determine whether P300 parameter can predict progression to overt schizophrenia. Thirty-three subjects with ARMS, 39 with schizophrenia, and 28 healthy controls participated in the study. All subjects were antipsychotic-free. Subjects with ARMS were followed-up for more than two years. Cognitive function was measured by the Brief assessment of Cognition in Schizophrenia (BACS) and Schizophrenia Cognition Rating Scale (SCoRS), while the modified Global Assessment of Functioning (mGAF) was used to assess global function. Patients with schizophrenia showed smaller P300 amplitudes and prolonged latency at Pz compared to those of healthy controls and subjects with ARMS. During the follow-up period, eight out of 33 subjects with ARMS developed overt psychosis (ARMS-P) while 25 did not (ARMS-NP). P300 latency of ARMS-P was significantly longer than that of ARMS-NP. At baseline, ARMS-P elicited worse cognitive functions, as measured by the BACS and SCoRS compared to ARMS-NP. We also detected a significant relationship between P300 amplitudes and mGAF scores in ARMS subjects. Our results suggest the usefulness of prolonged P300 latency and cognitive impairment as a predictive marker of later development of schizophrenia in vulnerable individuals.