The relationship between psychiatric severity and substance use disorders treatment outcome was assessed in 393 individuals who received either standard treatment or standard treatment plus contingency management. The sample was divided into groups of low, moderate, and high psychiatric severity based upon baseline Addiction Severity Index psychiatric composite scores. Participants in the high psychiatric severity group reported a greater prevalence of psychiatric hospitalization, psychiatric medications, and suicide attempts, as well as poorer baseline psychosocial functioning. In terms of treatment outcome, a significant interaction between psychiatric severity and treatment modality was found in relation to treatment retention. Participants in the standard treatment condition were more likely to dropout of treatment earlier as psychiatric severity increased, while retention was similar across the psychiatric severity groups in the contingency management condition. Psychiatric severity was not linked to longest duration of abstinence achieved during treatment or adherence with contingency management procedures. Overall, these findings suggest contingency management is an efficacious and appropriate intervention for substance use disordered individuals across a range of psychiatric problems.