AbstractAimAuditory hallucinations are hypothesized to be based in distorted sensory perceptions, with increasingly distorted perceptions of reality possibly prompting the first psychotic phase of schizophrenia spectrum disorders. Our goal was to examine the association between distorted auditory perceptions and psychotic symptomatology, social functioning and quality of life among individuals with first‐episode psychosis.MethodsForty individuals with first‐episode psychosis completed assessments of distorted auditory perception, psychotic symptomatology, social functioning and quality of life.ResultsBoth negative (greater symptomatology) and positive clinical correlates (better quality of life) were associated with greater distorted auditory perceptions.ConclusionsOur findings suggest that distorted auditory perceptions are associated with both positive and negative clinical correlates among individuals with first‐episode psychosis. These results highlight the potential clinical importance of balancing the goal of symptomatic reduction with the need to maintain healthy coping strategies that may be biologically and psychologically entwined with the symptoms of psychosis, themselves.