BACKGROUND Social anxiety disorder (SAD) is surprisingly prevalent among people with psychosis and exerts significant impact on social disability. The processes that underlie its development remain unclear. The aim of this study was to investigate the relationship between shame cognitions arising from a stigmatizing psychosis illness and perceived loss of social status in co-morbid SAD in psychosis. METHOD This was a cross-sectional study. A sample of individuals with SAD (with or without psychosis) was compared with a sample with psychosis only and healthy controls on shame proneness, shame cognitions linked to psychosis and perceived social status. RESULTS Shame proneness (p < 0.01) and loss of social status (p < 0.01) were significantly elevated in those with SAD (with or without psychosis) compared to those with psychosis only and healthy controls. Individuals with psychosis and social anxiety expressed significantly greater levels of shame (p < 0.05), rejection (p < 0.01) and appraisals of entrapment (p < 0.01) linked to their diagnosis and associated stigma, compared to those without social anxiety. CONCLUSIONS These findings suggest that shame cognitions arising from a stigmatizing illness play a significant role in social anxiety in psychosis. Psychological interventions could be enhanced by taking into consideration these idiosyncratic shame appraisals when addressing symptoms of social anxiety and associated distress in psychosis. Further investigation into the content of shame cognitions and their role in motivating concealment of the stigmatized identity of being 'ill' is needed.