BACKGROUND: Psychosocial interventions may contribute to reducing the burden of mental disorders in low- and middle-income (LAMI) countries by improving social functioning, but the evidence has not been systematically reviewed. AIMS: Systematic review and meta-analysis of the effect of psychosocial interventions on social functioning in people with depression and schizophrenia in LAMI countries. METHOD: Studies were identified through database searching up to March 2011. Randomised controlled trials were included if they compared the intervention group with a control group receiving placebo or treatment as usual. Random effects meta-analyses were performed separately for depressive disorders and schizophrenia and for each intervention type. RESULTS: Of the studies that met the inclusion criteria (n = 24), 21 had sufficient data to include in the meta-analysis. Eleven depression trials showed good evidence for a moderate positive effect of psychosocial interventions on social functioning (standardised mean difference (SMD) = 0.46, 95% CI 0.24-0.69, n = 4009) and ten schizophrenia trials showed a large positive effect on social functioning (SMD = 0.84, 95% CI 0.49-1.19, n = 1671), although seven of these trials were of low quality. Excluding these did not substantially affect the size or direction of effect, although the precision of the estimate was substantially reduced (SMD = 0.89, 95% CI 0.05-1.72, n = 863). CONCLUSIONS: Psychosocial interventions delivered in out-patient and primary care settings are effective at improving social functioning in people with depression and should be incorporated into efforts to scale up services. For schizophrenia there is an absence of evidence from high-quality trials and the generalisabilty of the findings is limited by the over-representation of trials conducted in populations of hospital patients in China. More high-quality trials of psychosocial interventions for schizophrenia delivered in out-patient settings are needed.