While the role of impaired cognition in accounting for functional outcome in schizophrenia is generally established by now, the overlap is far from complete. Moreover, little is known about the potential mechanisms that bridge between cognition and functional outcome. The aim of this article is to aid in closing this gap by presenting a novel, more ecologically valid approach for neuropsychological assessment. The new approach is motivated by the view that metacognitive processes of self-monitoring and self-regulation are fundamental determinants of competent functioning in the real world. The new approach incorporates experimental psychological concepts and paradigms used to study metacognition into current standard neuropsychological assessment procedures. Preliminary empirical data that support and demonstrate the utility of the new approach for assessment, as well as remediation efforts, in schizophrenia are presented and discussed.