Ethnicity was examined for its relationship to prospective functional outcomes from community-based psychosocial rehabilitation for individuals with schizophrenia. Participants were 98 individuals diagnosed with schizophrenia or schizoaffective disorder who were admitted to two community-based psychosocial rehabilitation programs. Previous studies had established that these programs were effective in improving functional outcomes. Data on hospitalization, independent living, social, and work functioning were collected every 6 months for a period of 3 years. The results using hierarchical linear modeling revealed significant differences among non-minorities, African Americans, and Latinos in rehabilitative change over time in the domains of work and social functioning. Non-minorities achieved the greatest gains in both social and work functioning. African Americans showed little change in social functioning, but showed a decline in work functioning. In the domain of work, Latinos deteriorated more than African Americans, and this was most notable for Latino males. There were no cross-ethnic differences in independent living or hospitalization outcomes. Based on these findings, there is important variation among different ethnic groups in their response to psychosocial rehabilitation. Implications are discussed in terms of the need for culturally relevant rehabilitation methods, and for research on cultural constructs in community-based intervention studies. (C) 2001 John Wiley & Sons, Inc.