IMPORTANCE Psychotic disorders are characterized by impairments in neural oscillations, but the nature of the deficit, the trajectory across illness stages, and functional relevance remain unclear. OBJECTIVES To examine whether changes in spectral power, phase locking, and functional connectivity in visual cortex are present during emerging psychosis and whether these abnormalities are associated with clinical outcomes. DESIGN, SETTING, AND PARTICIPANTS In this cross-sectional study, participants meeting clinical high-risk criteria for psychosis, participants with first-episode psychosis, participants with affective disorders and substance abuse, and a group of control participants were recruited. Participants underwent measurements with magnetoencephalography and magnetic resonance imaging. Data analysis was carried out between 2018 and 2019. MAIN OUTCOMES AND MEASURES Magnetoencephalographical activity was examined in the 1to 90-Hz frequency range in combination with source reconstruction during a visual grating task. Event-related fields, power modulation, intertrial phase consistency, and connectivity measures in visual and frontal cortices were associated with neuropsychological scores, psychosocial functioning, and clinical symptoms as well as persistence of subthreshold psychotic symptoms at 12 months. RESULTS The study participants included those meeting clinical high-risk criteria for psychosis (n = 119; mean [SD] age, 22 [4.4] years; 32 men), 26 patients with first-episode psychosis (mean [SD] age, 24 [4.2] years; 16 men), 38 participants with affective disorders and substance abuse (mean [SD] age, 23 [4.7] years; 11 men), and 49 control participants (mean age [SD], 23 [3.6] years; 16 men). Clinical high-risk participants and patients with first-episode psychosis were characterized by reduced phase consistency of β/γ-band oscillations in visual cortex (d = 0.63/d = 0.93). Moreover, the first-episode psychosis group was also characterized by reduced occipital γ-band power (d = 1.14) and altered visual cortex connectivity (d = 0.74-0.84). Impaired fronto-occipital connectivity was present in both clinical high-risk participants (d = 0.54) and patients with first-episode psychosis (d = 0.84). Importantly, reductions in intertrial phase coherence predicted persistence of subthreshold psychosis in clinical high-risk participants (receiver operating characteristic area under curve = 0.728; 95% CI, 0.612-0.841; P = .001). CONCLUSIONS AND RELEVANCE High-frequency oscillations are impaired in the visual cortex during emerging psychosis and may be linked to behavioral and clinical impairments. Impaired phase consistency of γ-band oscillations was also associated with the persistence of subthreshold psychosis, suggesting that magnetoencephalographical measured neural oscillations could constitute a biomarker for clinical staging of emerging psychosis.