Objective: To describe the occurrence of impaired self-awareness (ISA) after traumatic brain injury (TBI) and its association with emotional distress and psychosocial functioning following discharge. Design: Prospective cohort design with data collection at discharge and 1-, 3- and 6-month follow-up. Participants: 81 adults with TBI. Measures: Self-awareness was measured using a discrepancy score generated from the Mayo-Portland Adaptability Index (MPAI-4) Ability subscale, and significant other’s ratings of Item 20 on the MPAI-4. Other measures were the Depression Anxiety Stress Scale-21 and Sydney Psychosocial and Reintegration Scale. Results: The discrepancy score method identified more cases of ISA than the single-item rating by significant others. Using discrepancy scores, the occurrence of ISA was 69.1% at discharge, and for those remaining in the study 6 months later, it was 54.3%. Better self-awareness was associated with greater anxiety at discharge, and stress at discharge, 3 and 6 months later, and better psychosocial functioning at all time points. Participants with ISA had significantly poorer relationships at 6 months post-discharge after controlling for injury severity. Conclusion: Whilst self-awareness is associated with greater stress in patients with TBI, it is also associated with better outcomes, indicating the importance of targeting ISA in rehabilitation.