There is an ongoing debate as to whether psychosis is a progressively deteriorating illness or one of progressive amelioration. This paper aims at investigating the rate of recovery and institutionalization and predicting a continuous illness course in a descriptive prospective study of a sub-sample of the OPUS trial of 265 first-episode psychotic patients after five years. Recovery, defined as no psychotic or negative symptoms, living independently, GAF (f)>59, working or studying, was reached for 18% after five years, whereas 13% were institutionalized either at hospital or supported housing after five years. Male gender (OR 1.9, 95% CI 1.06 to 3.23), premorbid social functioning (OR 1.2, 95% CI 1.01 to 1.33), psychotic symptoms (OR 1.3, 95% CI 1.07 to 1.66), and negative symptoms (OR 1.3, 95% CI 1.01 to 1.67) were found to predict a continuous illness course at five-year follow-up. Rates of recovery and institutionalization contradict the assumption that the illness deteriorates progressively, since no changes in the rates are seen from two to five years.