Cognitive deficits in various domains have been shown in patients with bipolar disorder and schizophrenia. The purpose of the present study was to examine if residual psychopathology explained the difference in cognitive function between clinically stable patients with schizophrenia and bipolar disorder. We compared the performance on tests of attention, visual and verbal memory, and executive function of 25 patients with schizophrenia in remission and 25 euthymic bipolar disorder patients with that of 25 healthy controls. Mediation analysis was used to see if residual psychopathology could explain the difference in cognitive function between the patient groups. Both patient groups performed significantly worse than healthy controls on most cognitive tests. Patients with bipolar disorder displayed cognitive deficits that were milder but qualitatively similar to those of patients with schizophrenia. Residual negative symptoms mediated the difference in performance on cognitive tests between the two groups. Neither residual general psychotic symptoms nor greater antipsychotic doses explained this relationship. The shared variance explained by the residual negative and cognitive deficits that the difference between patient groups may be explained by greater frontal cortical neurophysiological deficits in patients with schizophrenia, compared to bipolar disorder. Further longitudinal work may provide insight into pathophysiological mechanisms that underlie these deficits.