Despite the large and growing prevalence of gender-affirming hormone therapy, there has been no systematic examination of potential psychosocial implications of such treatments. In this systematic review, we aimed to assess the current state and quality of evidence for effects of gender-affirming hormone therapy on psychosocial functioning (i.e., well-being, self-mastery and interpersonal functioning) in transgender people. We identified a total of 32 relevant papers, including 5 qualitative, 12 cross-sectional and 15 prospective cohort studies. The most consistent evidence is that gender-affirming hormone therapy reduces depressive symptoms and psychological distress while also potentially reducing general anxiety (indicators of well-being). Evidence for quality of life and affect is more mixed, but tends to point in the direction of improvements here too, especially for feminizing therapy. However, there was some evidence of affective dampening among transmasculine people and mood swings and emotional imbalances among transfeminine people. Self-mastery was the aspect of psychosocial functioning with the most ambiguous results, with early studies hinting at greater readiness to act on anger, confirmed in a more recent study with transgender men but not examined recently in transgender women. However, anger intensity does not seem to increase for those on either masculinizing or feminizing hormone therapy. Interpersonal functioning has received the least attention, with hints toward positive change for those on both feminizing and masculinizing hormone therapy (most commonly in the form of reduced social anxiety). Given the paramount importance of social relationships to health and well-being, high quality evidence for psychosocial effects of gender-affirming hormone therapy is vital to ensuring health equity for transgender people.