Efforts to prevent or lessen the functional impact of the onset of schizophrenia can be informed by a better understanding of brain systems involved in cognitive and emotional processing at the earliest stages of the disorder. Yet, studies investigating these early stages of schizophrenia are rare. A fuller understanding of disruptions in the neural systems underlying cognitive and emotional processing at these earliest stages of psychosis will lead to more targeted efforts to prevent or minimize functional limitations among patients with psychosis. Using functional magnetic resonance imaging (fMRI), the present study compared brain functioning associated with emotional as well as cognitive processes in groups of individuals who exhibited early and sub-threshold symptoms of psychosis to patients (P/AR) in their early phases of psychosis and/ or immediately after their first psychotic episode (FE) and to healthy individuals (HC). We also explored to what extent the engagement of neural systems during these challenges is related to or predicted by individual emotional and cognitive performance as well as global functioning along the psychosis spectrum. Contrary to our expectations, load-related brain activation during the working memory challenge was similar among all three groups in a region of DLPFC that was task-responsive across the groups, although whole-brain analysis revealed group differences in other regions. Amygdalar brain activation during the emotional challenge, in contrast to our hypothesis, was not different between the HC and P/AR groups and was increased in magnitude in the FE group. Neuropsychological performance was related to DLPFC brain activation in both FE and P/AR groups, but in opposite directions. We also found associations between global functioning and magnitude of brain response during the emotional and cognitive challenges. The present results suggest that both cognitive and emotional systems are implicated in the earliest stages of psychosis. Further analyses suggested that brain responses were associated with neuropsychological performance as well as overall global functioning scores. Our findings highlight that more basic neurobiological abnormalities likely account for overall global functioning early in the course of schizophrenia. Our results could be interpreted as supporting a dysregulation hypothesis of developing psychosis such that global functioning is compromised as a function of disruption in the regulatory mechanisms between cognitive and emotional systems.