Genome-wide association studies (GWAS) have uncovered susceptibility loci associated with psychiatric disorders like bipolar disorder (BP) and schizophrenia (SCZ). However, most of these loci are in non-coding regions of the genome with unknown causal mechanisms of the link between genetic variation and disease risk. Expression quantitative trait loci (eQTL) analysis of bulk tissue is a common approach to decipher underlying mechanisms, though this can obscure cell-type specific signals thus masking trait-relevant mechanisms. While single-cell sequencing can be prohibitively expensive in large cohorts, computationally inferred cell type proportions and cell type gene expression estimates have the potential to overcome these problems and advance mechanistic studies. Using bulk RNA-Seq from 1,730 samples derived from whole blood in a cohort ascertained for individuals with BP and SCZ this study estimated cell type proportions and their relation with disease status and medication. We found between 2,875 and 4,629 eGenes for each cell type, including 1,211 eGenes that are not found using bulk expression alone. We performed a colocalization test between cell type eQTLs and various traits and identified hundreds of associations between cell type eQTLs and GWAS loci that are not detected in bulk eQTLs. Finally, we investigated the effects of lithium use on cell type expression regulation and found examples of genes that are differentially regulated dependent on lithium use. Our study suggests that computational methods can be applied to large bulk RNA-Seq datasets of non-brain tissue to identify disease-relevant, cell type specific biology of psychiatric disorders and psychiatric medication.