The insula is a heterogeneous cortical region, comprised of three cytoarchitecturally distinct sub-regions (agranular, dysgranular, and granular), which traverse the anterior-posterior axis and are differentially involved in affective, cognitive, and somatosensory processing. Smaller insula volume is consistently reported in psychosis-spectrum disorders and is hypothesized to result, in part, from abnormal neurodevelopment. To better understand the regional and diagnostic specificity of insula abnormalities in psychosis, their developmental etiology, and clinical correlates, we characterized insula volume and morphology in a large group of adults with a psychotic disorder (schizophrenia spectrum, psychotic bipolar disorder) and a community-ascertained cohort of psychosis-spectrum youth (age 8-21). Insula volume and morphology (cortical thickness, gyrification, sulcal depth) were quantified from T1-weighted structural brain images using the Computational Anatomy Toolbox (CAT12). Healthy adults (n = 196), people with a psychotic disorder (n = 303), and 1368 individuals from the Philadelphia Neurodevelopmental Cohort (PNC) (381 typically developing (TD), 381 psychosis-spectrum (PS) youth, 606 youth with other psychopathology (OP)), were investigated. Insula volume was significantly reduced in adults with psychotic disorders and psychosis-spectrum youth, following an anterior-posterior gradient across granular sub-regions. Morphological abnormalities were limited to lower gyrification in psychotic disorders, which was specific to schizophrenia and associated with cognitive ability. Insula volume and thickness were associated with cognition, and positive and negative symptoms of psychosis. We conclude that smaller insula volume follows an anterior-posterior gradient in psychosis and confers a broad risk for psychosis-spectrum disorders. Reduced gyrification is specific to schizophrenia and may reflect altered prenatal development that contributes to cognitive impairment.