Objective: To examine the effects of treatment on functioning impairments and quality of life and assess baseline functioning and employment status as predictors of treatment response in symptomatic individuals from the Bipolar Clinical Health Outcomes Initiative in Comparative Effectiveness (Bipolar CHOICE) study. Method: Bipolar CHOICE was an 11-site, 6-month randomized effectiveness study comparing lithium to quetiapine, each with adjunctive personalized treatments (APTs). We examined post hoc (1) the effects of treatment on functioning, (2) how changes in functioning differed between treatment responders and nonresponders, and (3) whether functioning and employment status mediated treatment response in 482 participants with DSM-IV-TR bipolar I or II disorder from September 2010 to September 2013. Results: Treatment was associated with significant improvements in functioning and quality of life, regardless of treatment group (P values <.0001). Responders showed greater improvements in quality of life (Quality of Life Enjoyment and Satisfaction Questionnaire P values <.05) and functioning (Longitudinal Interval Follow-up Evaluation-Range of Impaired Functioning Tool P values <.05) than nonresponders. Unemployed or disabled participants at baseline had significantly greater illness severity at baseline than employed participants (P values <.05). Over the study duration, employed participants reported greater improvements in physical health and quality of life in leisure activities than both unemployed and disabled participants (P values <.05). Individuals who saw greater improvement in functioning and quality of life tended to show greater improvements in depressive and anxiety symptoms (P values ≥.0001), as well as overall illness severity (P values <.001). Early (8 weeks) and very early (4 weeks) clinical changes in mood symptoms predicted changes in functioning and quality of life at 6 months (P values <.001). Conclusions: Prior disability status was associated with a worse treatment response and prospective illness course. Results implicate functioning and employment status as important markers of illness severity and likelihood of recovery in bipolar disorder, suggesting that interventions that target functional impairment may improve outcomes. Trial Registration: ClinicalTrials.gov identifier for the Bipolar CHOICE study: NCT01331304.