Purpose <p>Although previous studies have considered loneliness as a mediator of the relationship between prodromal psychotic symptoms and impaired social functioning, there is lack of consensus regarding directionality of effects. We tested two competing hypotheses: Prodromal psychotic symptoms lead to deficits in social functioning via loneliness, vs. social functioning deficits lead to amplification of prodromal psychotic symptoms via loneliness.</p> Methods <p>We implemented a longitudinal mediational design measuring variables (social functioning, loneliness and prodromal symptoms) at three time points over 6 to 8 months (<i>N</i> = 276) in a sample of British undergraduate students. We tested four longitudinal mediation path models across the three time points, controlling for age, gender and ethnicity.</p> Results <p>Longitudinal mediational analyses suggest that both baseline prodromal symptoms and baseline distress about prodromal symptoms lead to small-to-moderate (standardized indirect effects = − 0.02) impairments in social functioning 6 to 8 months later via loneliness. However, baseline impairments in social functioning did not augment prodromal symptoms or symptom distress 6 to 8 months later.</p> Conclusion <p>The results suggest that prodromal psychotic symptoms and distress about symptoms lead to impairments in social functioning via loneliness but not vice versa. These results suggest the need for preventative strategies to target loneliness which could prevent subsequent exacerbation of social functioning deficits. Future studies need to examine loneliness as a mechanism in the relationship between prodromal psychotic symptoms and social functioning across cultures, age groups, and over longer time periods.</p>