Background Facial emotion recognition (FER) is essential to guide social functioning and behaviour for interpersonal communication. FER may be altered in severe mental illness such as in psychosis and in borderline personality disorder patients. However, it is unclear if these FER alterations are specifically related to psychosis. Awareness of FER alterations may be useful in clinical settings to improve treatment strategies. The aim of our study was to examine FER in patients with severe mental disorder and their relation with psychotic symptomatology. Materials and Methods Socio-demographic and clinical variables were collected. Alterations on emotion recognition were assessed in 3 groups: patients with first episode psychosis (FEP) (n = 64), borderline personality patients (BPD) (n = 37) and healthy controls (n = 137), using the Degraded Facial Affect Recognition Task. The Positive and Negative Syndrome Scale, Structured Interview for Schizotypy Revised and Community Assessment of Psychic Experiences scales were used to assess positive psychotic symptoms. WAIS III subtests were used to assess IQ. Results Kruskal-Wallis analysis showed a significant difference between groups on the FER of neutral faces score between FEP, BPD patients and controls and between FEP patients and controls in angry face recognition. No significant differences were found between groups in the fear or happy conditions. There was a significant difference between groups in the attribution of negative emotion to happy faces. BPD and FEP groups had a much higher tendency to recognize happy faces as negatives. There was no association with the different symptom domains in either group. Conclusions FEP and BPD patients have problems in recognizing neutral faces more frequently than controls. Moreover, patients tend to over-report negative emotions in recognition of happy faces. Although no relation between psychotic symptoms and FER alterations was found, these deficits could contribute to a patient's misinterpretations in daily life.