Aim: Computer-based virtual reality assessments of functional capacity have shown promise as a reliable and valid way to assess individuals with multi-episode schizophrenia. However, there has been little research utilizing this innovative approach with young patients who are in the early phase of schizophrenia. Methods: Outpatients in the early course of schizophrenia (n = 42) were compared to controls (n = 13) at cross-sectional study points. Patients were within 2 years of their first psychotic episode, were an average of 22.2 years old and had an average of 12.3 years of education. We used the Virtual Reality Functional Capacity Assessment Tool (VRFCAT) and the University of California, San Diego (UCSD) Performance-Based Skills Assessment-2 (UPSA-2) to assess functional capacity. The MATRICS Consensus Cognitive Battery (MCCB) and the Cognitive Assessment Interview (CAI) were the measures of cognitive functioning. The Global Functioning Scale: Role (GFS-R) and Social (GFS-S), and the Role Functioning Scale (RFS) were the measures of daily functioning. Results: Early course patients vs controls were slower (patient M = 830.41 seconds vs control M = 716.84 seconds; t = 3.0, P <.01) and committed more errors (patient M = 3.2 vs control M = 1.7 seconds, t = 2.9, P <.01) on the VRFCAT. Total time was significantly correlated with the UPSA (r = −0.66, P <.01), MCCB (r = −0.70, P <.01), CAI (r = −0.51, P <.01), and GFS role (r = −0.52, P <. 01) and social functioning (r = −0.43, P =.03). Conclusions: We extend previous findings to patients with first-episode schizophrenia. Virtual-reality–based performance was correlated with a standard test of functional capacity, indicating VRFCAT validity. Furthermore, correlations with cognitive functioning and occupational/school and social functioning indicate promise as a co-primary measure to track changes in response to treatment.