Severe mental illness (SMI) is a broad category that includes schizophrenia, bipolar disorder, and severe depression. Both genetic disposition and environmental exposures play important roles in the development of SMI. Multiple lines of evidence suggest that the roles of genetic and environmental factors depend on each other. Gene-environment interactions may underlie the paradox of strong environmental factors for highly heritable disorders, the low estimates of shared environmental influences in twin studies of SMI, and the heritability gap between twin and molecular heritability estimates. Sons and daughters of parents with SMI are more vulnerable to the effects of prenatal and postnatal environmental exposures, suggesting that the expression of genetic liability depends on environment. In the last decade, gene-environment interactions involving specific molecular variants in candidate genes have been identified. Replicated findings include an interaction between a polymorphism in the AKT1 gene and cannabis use in the development of psychosis and an interaction between the length polymorphism of the serotonin transporter gene and childhood maltreatment in the development of persistent depressive disorder. Bipolar disorder has been underinvestigated, with only a single study showing an interaction between a functional polymorphism in the BDNF gene and stressful life events triggering bipolar depressive episodes. The first systematic search for gene-environment interactions has found that a polymorphism in CTNNA3 may sensitize the developing brain to the pathogenic effect of cytomegalovirus in utero, leading to schizophrenia in adulthood. Strategies for genome-wide investigations will likely include coordination between epidemiological and genetic research efforts, systematic assessment of multiple environmental factors in large samples, and prioritization of genetic variants.