Historically, bipolar disorder has been conceptualized as a disease involving episodic rather than chronic dysfunction. However, increasing evidence indicates that bipolar disorder is associated with substantial inter-episode psychosocial and vocational impairment. Here we review the contributions of neurocognitive deficits and structural and functional neuroanatomic alterations to the observed functional impairments. In particular, compelling evidence now suggests that neurocognitive impairments, particularly in the areas of attention, processing speed, and memory, are associated with functional outcome. Although investigation of the neural correlates of functional disability in bipolar disorder is only in its nascent stages, preliminary evidence suggests that white matter abnormalities may be predictive of poor outcome. A better understanding of the relationship between neurocognitive and neuroimaging assays and functional outcome has the potential to improve current treatment options and provide targets for new treatment strategies in bipolar disorder.