The impact of the experience and diagnosis of mental illness on one's identity has long been recognized; however, little is known about the impact of illness identity, which we define as the set of roles and attitudes that a person has developed in relation to his or her understanding of having a mental illness. The present article proposes a theoretically driven model of the impact of illness identity on the course and recovery from severe mental illness and reviews relevant research. We propose that accepting a definition of oneself as mentally ill and assuming that mental illness means incompetence and inadequacy impact hope and self-esteem, which further impact suicide risk, coping, social interaction, vocational functioning, and symptom severity. Evidence supports most of the predictions made by the model. Implications for psychiatric rehabilitation services are discussed.