Background: Paradoxically, insight is associated with positive outcomes, such as better treatment adherence and recovery, and negative outcomes, such as depression, hopelessness, low self-esteem, and quality of life. Self-stigma as a moderating variable can be decisive whether more insight leads to better or worse outcome. On the other hand, self-stigma can act as a mediator between insight and outcomes. We therefore examined self-stigma both as a moderator and a mediator. Methods: Insight, self-stigma, demoralization, symptoms, and functioning were assessed among 145 outpatients with schizophrenia spectrum disorders using questionnaires and structured interviews. Structural equation modeling was used to analyze the cross-sectional data. Results: Results confirmed self-stigma as a moderator: The association of insight and demoralization was stronger as self-stigma increased. Self-stigma also partially mediated the positive relationship between insight and demoralization. Moreover, demoralization fully mediated the adverse associations of self-stigma with psychotic symptoms and global functioning. Discussion: Given the decisive role of self-stigma regarding the detrimental consequences of insight, interventions should address self-stigma, particularly if psychoeducational or other interventions have increased insight. Therapeutic implications for changes of dysfunctional beliefs related to illness and self and change of self-concept in the context of recovery at the level of narrative identity are discussed. (C) 2012 Elsevier Inc. All rights reserved.