Objective: Verbal episodic memory deficits are prominent in schizophrenia and have also been found in first episode psychosis (FEP) and individuals at clinical risk of the disorder. The central role of the hippocampus in verbal memory processing and the consistent findings of hippocampal volume reductions in chronic patients have prompted the suggestion that impaired verbal memory performance may be a biomarker of schizophrenia. However, it is currently unclear as to when, during the early phase of psychosis, verbal memory performance becomes significantly impaired. The current study investigated verbal relational memory in FEP using a novel verbal paired associate task, and tested whether performance was dependent on phase of illness within FEP, where patients with a diagnosis of schizophrenia were considered to be in a more advanced stage than those with schizophreniform disorder. Method: Forty-seven currently psychotic FEP patients and 36 healthy non-psychiatric controls, aged 15-25 years old, completed a test comprising four trials of learning and cued recall of word pairs (denoted AB pairs), an interference phase comprising two trials with new second words (AC pairs), and finally cued recall for the original AB pairings. Results: FEP patients performed similarly to controls on the relational memory task. There was no difference in performance between FEP patients who had a diagnosis of schizophrenia and those with a diagnosis of schizophreniform disorder. Conclusions: Verbal relational memory appears to be intact in FEP. This finding, along with chronic patient literature, suggests that decline in hippocampal and medial temporal lobe functioning occurs during later illness stages. Further research is needed to aid in the development of intervention strategies that may prevent decline in such cognitive domains at this crucial early stage of the illness.