In recent years, virtual reality (VR) research on psychotic disorders has been initiated. Several studies showed that VR can elicit paranoid thoughts about virtual characters (avatars), both in patients with psychotic disorders and healthy individuals. Real life symptoms and VR experiences were correlated, lending further support to its validity. Neurocognitive deficits and difficulties in social behavior were found in schizophrenia patients, not only in abstract tasks but also using naturalistic virtual environments that are more relevant to daily life, such as a city or encounters with avatars. VR treatments are conceivable for most dimensions of psychotic disorders. There is a small but expanding literature on interventions for delusions, hallucinations, neurocognition, social cognition, and social skills; preliminary results are promising. VR applications for assessment and treatment of psychotic disorders are in their infancy, but appear to have a great potential for increasing our understanding of psychosis and expanding the therapeutic toolbox.