Cognitive impairments affect the majority of patients with schizophrenia and these impairments predict poor long term psychosocial outcomes. Treatment studies aimed at cognitive impairment in patients with schizophrenia not only require demonstration of improvements on cognitive tests, but also evidence that any cognitive changes lead to clinically meaningful improvements. Measures of “functional capacity” index the extent to which individuals have the potential to perform skills required for real world functioning. Current data do not support the recommendation of any single instrument for measurement of functional capacity. The Virtual Reality Functional Capacity Assessment Tool (VRFCAT) is a novel, interactive gaming based measure of functional capacity that uses a realistic simulated environment to recreate routine activities of daily living. Studies are currently underway to evaluate and establish the VRFCAT’s sensitivity, reliability, validity, and practicality. This new measure of functional capacity is practical, relevant, easy to use, and has several features that improve validity and sensitivity of measurement of function in clinical trials of patients with CNS disorders.