Fifty-eight adolescents meeting Research Diagnostic Criteria (RDC) for major depressive disorder were observed for 24-months after inpatient admission in a prospective, naturalistic design study to assess time to recovery, risk of manic switching, and level and persistence of psychosocial impairment. Subjects were further categorized as psychotic or nonpsychotic by RDC. The cumulative probability of recovery by 24 months was high (90%); however, the episode was protracted with only 6.9% recovering within 12 weeks and only 29.3% recovering by week 20. Time to recovery did not vary by RDC subtype, but manic switching was observed only among psychotics, at a rate of 28%. Psychotics were more likely than were nonpsychotics to exhibit psychosocial impairment through 6 months of follow-up, but this difference narrows by 24 months. Implications of these findings for understanding developmental effects on the course and treatment of depression in adolescents are discussed.