Abstract Background and Hypothesis Animal models indicate GABAergic dysfunction in the development of psychosis, and that benzodiazepine (BDZ) exposure can prevent the emergence of psychosis-relevant phenotypes. However, whether BDZ exposure influences real-world clinical outcomes in individuals at clinical high risk for psychosis (CHR-P) is unknown. Study Design This observational cohort study used electronic health record data from CHR-P individuals to investigate whether BDZ exposure (including hypnotics, eg, zopiclone) reduces the risk of developing psychosis and adverse clinical outcomes. Cox proportional-hazards models were employed in both the whole-unmatched sample, and a propensity score matched (PSM) subsample. Study Results 567 CHR-P individuals (306 male, mean[±SD] age = 22.3[±4.9] years) were included after data cleaning. The BDZ-exposed (n = 105) and BDZ-unexposed (n = 462) groups differed on several demographic and clinical characteristics, including psychotic symptom severity. In the whole-unmatched sample, BDZ exposure was associated with increased risk of transition to psychosis (HR = 1.61; 95% CI: 1.03–2.52; P = .037), psychiatric hospital admission (HR = 1.93; 95% CI: 1.13–3.29; P = .017), home visit (HR = 1.64; 95% CI: 1.18–2.28; P = .004), and Accident and Emergency department attendance (HR = 1.88; 95% CI: 1.31–2.72; P < .001). However, after controlling for confounding-by-indication through PSM, BDZ exposure did not modulate the risk of any outcomes (all P > .05). In an analysis restricted to antipsychotic-naïve individuals, BDZ exposure reduced the risk of transition to psychosis numerically, although this was not statistically significant (HR = 0.59; 95% CI: 0.32–1.08; P = .089). Conclusions BDZ exposure in CHR-P individuals was not associated with a reduction in the risk of psychosis transition or adverse clinical outcomes. Results in the whole-unmatched sample suggest BDZ prescription may be more likely in CHR-P individuals with higher symptom severity.