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Background: Severe mental disorders are associated with long-standing functional impairment and disability. The degree of disability varies with diagnosis. However, limited evidence are available on the association of psychiatric diagnosis and disability, especially from community settings in India. Methods: We examined the association of psychiatric diagnosis and disability in 711 persons suffering from severe mental illness. The patients were recruited from 12 community psychiatry outreach clinics at Wayanad District, South India. The Indian Disability Evaluation and Assessment Scale was administered to measure disability. ANOVA was applied to examine the extent of disability variance in diagnosis. Results: Disability varied significantly with diagnosis (F = 3.866; P = 0.000). Persons with schizophrenia experienced higher disability than bipolar affective disorder and depressive disorder. However, the disability was found nonsignificant in other diagnosis groups. Conclusion: The result implies the need for illness-specific programs and rehabilitative measures for persons with disability.