Abstract Background Literature has typically associated delusional disorder with a poorer prognosis relative to schizophrenia, without considering the confounding effect of age despite the differential age of onset. This study therefore aims to investigate the diagnostic stability, clinical, functional, and neurocognitive differences of Chinese first-episode psychosis age-matched patients with delusional disorder and schizophrenia at four years. Methods 71 delusional disorder and 71 age-matched schizophrenia patients were followed up for four years after their initial episode. Their symptoms, insight in psychosis, side effects of medication, medication compliance, functioning, and neurocognitive performance were assessed at four years. Results At four years, 65% of DD patients maintained the same diagnosis, while the rest shifted to SZ. Only those without a diagnostic shift were included in the analysis. Delusional disorder patients (n = 46) experienced greater general psychopathology and poorer insight, but better attitude towards medication than schizophrenia patients (n = 71). Social and occupational functioning, quality of life, and cognitive functioning, however, were similar in delusional disorder and schizophrenia patients. Conclusions Results indicate that delusional disorder is less diagnostically stable than schizophrenia. Their outcomes in a Chinese population were largely similar at four years after removing the confounding age factor, implying that delusional disorder and schizophrenia may not be as distinct as previously thought.