Psychosis is first and foremost a diagnosis of exclusion. So a new-onset episode of psychosis "cannot" be considered a symptom of a psychiatric disorder until other relevant and known causes of psychosis are properly excluded, or ruled out. Many clinicians improperly perform, or entirely miss this step, introducing avoidable diagnostic error and misdiagnosis.

An initial assessment includes a comprehensive history and physical examination by a physician, psychiatrist, psychiatric nurse practitioner or psychiatric physician assistant. Biological tests should be performed to exclude psychosis associated with or caused by substance use, medication, toxins, surgical complications, or other medical illnesses.

Delirium should be ruled out, which can be distinguished by visual hallucinations, acute onset and fluctuating level of consciousness, indicating other underlying factors, including medical illnesses. Excluding medical illnesses associated with psychosis is performed by using blood tests to measure:

- Thyroid-stimulating hormone to exclude hypo- or hyperthyroidism,

- Basic electrolytes and serum calcium to rule out a metabolic disturbance,

- Full blood count including ESR to rule out a systemic infection or chronic disease, and

- Serology to exclude syphilis or HIV infection.

Other investigations include:

- EEG to exclude epilepsy, and an

- MRI or CT scan of the head to exclude brain lesions.

Because psychosis may be precipitated or exacerbated by common classes of medications, medication-induced psychosis should be ruled out, particularly for first-episode psychosis. Both substance- and medication-induced psychosis can be excluded to a high level of certainty, using a

- Urinalysis and a

- Full serum toxicology screening.

Because some dietary supplements may also induce psychosis or mania, but cannot be ruled out with laboratory tests, a psychotic individual's family, partner, or friends should be asked whether the patient is currently taking any dietary supplements.

Common mistakes made when diagnosing people who are psychotic include:

- Not properly excluding delirium,

- Not appreciating medical abnormalities (e.g., vital signs),

- Not obtaining a medical history and family history,

- Indiscriminate screening without an organizing framework,

- Missing a toxic psychosis by not screening for substances "and" medications

- Not asking family or others about dietary supplements,

- Premature diagnostic closure, and

- Not revisiting or questioning the initial diagnostic impression of primary psychiatric disorder.

Only after relevant and known causes of psychosis are excluded, a mental health clinician may make a psychiatric differential diagnosis using a person's family history, incorporating information from the person with psychosis, and information from family, friends, or significant others.

Types of psychosis in psychiatric disorders may be established by formal rating scales. The Brief Psychiatric Rating Scale (BPRS) assesses the level of 18 symptom constructs of psychosis such as hostility, suspicion, hallucination, and grandiosity. It is based on the clinician's interview with the patient and observations of the patient's behavior over the previous 2–3 days. The patient's family can also answer questions on the behavior report. During the initial assessment and the follow-up, both positive and negative symptoms of psychosis can be assessed using the 30 item Positive and Negative Symptom Scale (PANSS).

Differential diagnosis includes ruling out other causes such as drug-induced conditions, dementia, infections, metabolic disorders, and endocrine disorders. Other psychiatric disorders must then be ruled out. In delusional disorder, mood symptoms tend to be brief or absent, and unlike schizophrenia, delusions are non-bizarre and hallucinations are minimal or absent.

Interviews are important tools to obtain information about the patient's life situation and past history to help make a diagnosis. Clinicians generally review earlier medical records to gather a full history. Clinicians also try to interview the patient's immediate family, as this can be helpful in determining the presence of delusions. The mental status examination is used to assess the patient's current mental condition.

A psychological questionnaire used in the diagnosis of the delusional disorder is the Peters Delusion Inventory (PDI) which focuses on identifying and understanding delusional thinking. However, this questionnaire is more likely used in research than in clinical practice.

In terms of diagnosing a non-bizarre delusion as a delusion, ample support should be provided through fact checking. In case of non-bizarre delusions, Psych Central notes, "All of these situations could be true or possible, but the person suffering from this disorder knows them not to be (e.g., through fact-checking, third-person confirmation, etc.)."

The evidence for the effectiveness of early interventions to prevent psychosis appeared inconclusive. Whilst early intervention in those with a psychotic episode might improve short term outcomes, little benefit was seen from these measures after five years. However, there is evidence that cognitive behavioral therapy (CBT) may reduce the risk of becoming psychotic in those at high risk, and in 2014 the UK National Institute for Health and Care Excellence (NICE) recommended preventive CBT for people at risk of psychosis.

Some critical psychiatrists criticize the practice of defining one and the same belief as normal in one culture and pathological in another culture for cultural essentialism. They argue that since cultural influences are mixed, including not only parents and teachers but also peers, friends, books and the internet, and the same cultural influence can have different effects depending on earlier cultural influences, the assumption that culture can be boiled down to a few traceable, distinguishable and statistically quantifiable factors and that everything that does not fall in those factors must be biological, is not a justified assumption. Other critical psychiatrists argue that just because a person's belief is unshaken by one influence does not prove that it would remain unshaken by another. For example, a person whose beliefs are not changed by verbal correction from a psychiatrist, which is how delusion is usually diagnosed, may still change his or her mind when observing empirical evidence, only that psychiatry rarely if ever present patients with such situations.

The modern definition and Jaspers' original criteria have been criticised, as counter-examples can be shown for every defining feature.

Studies on psychiatric patients show that delusions vary in intensity and conviction over time, which suggests that certainty and incorrigibility are not necessary components of a delusional belief.

Delusions do not necessarily have to be false or 'incorrect inferences about external reality'. Some religious or spiritual beliefs by their nature may not be falsifiable, and hence cannot be described as false or incorrect, no matter whether the person holding these beliefs was diagnosed as delusional or not.

In other situations the delusion may turn out to be true belief. For example, in delusional jealousy, where a person believes that their partner is being unfaithful (and may even follow them into the bathroom believing them to be seeing their lover even during the briefest of partings), it may actually be true that the partner is having sexual relations with another person. In this case, the delusion does not cease to be a delusion because the content later turns out to be verified as true or the partner actually chose to engage in the behavior of which they were being accused.

In other cases, the delusion may be assumed to be false by a doctor or psychiatrist assessing the belief, because it "seems" to be unlikely, bizarre or held with excessive conviction. Psychiatrists rarely have the time or resources to check the validity of a person’s claims leading to some true beliefs to be erroneously classified as delusional. This is known as the Martha Mitchell effect, after the wife of the attorney general who alleged that illegal activity was taking place in the White House. At the time, her claims were thought to be signs of mental illness, and only after the Watergate scandal broke was she proved right (and hence sane).

Similar factors have led to criticisms of Jaspers' definition of true delusions as being ultimately 'un-understandable'. Critics (such as R. D. Laing) have argued that this leads to the diagnosis of delusions being based on the subjective understanding of a particular psychiatrist, who may not have access to all the information that might make a belief otherwise interpretable. R. D. Laing's hypothesis has been applied to some forms of projective therapy to "fix" a delusional system so that it cannot be altered by the patient. Psychiatric researchers at Yale University, Ohio State University and the Community Mental Health Center of Middle Georgia have used novels and motion picture films as the focus. Texts, plots and cinematography are discussed and the delusions approached tangentially. This use of fiction to decrease the malleability of a delusion was employed in a joint project by science-fiction author Philip Jose Farmer and Yale psychiatrist A. James Giannini. They wrote the novel "Red Orc's Rage", which, recursively, deals with delusional adolescents who are treated with a form of projective therapy. In this novel's fictional setting other novels written by Farmer are discussed and the characters are symbolically integrated into the delusions of fictional patients. This particular novel was then applied to real-life clinical settings.

Another difficulty with the diagnosis of delusions is that almost all of these features can be found in "normal" beliefs. Many religious beliefs hold exactly the same features, yet are not universally considered delusional. These factors have led the psychiatrist Anthony David to note that "there is no acceptable (rather than accepted) definition of a delusion." In practice, psychiatrists tend to diagnose a belief as delusional if it is either patently bizarre, causing significant distress, or excessively pre-occupying the patient, especially if the person is subsequently unswayed in belief by counter-evidence or reasonable arguments.

It is important to distinguish true delusions from other symptoms such as anxiety, fear, or paranoia. To diagnose delusions a mental state examination may be used. This test includes appearance, mood, affect, behavior, rate and continuity of speech, evidence of hallucinations or abnormal beliefs, thought content, orientation to time, place and person, attention and concentration, insight and judgment, as well as short-term memory.

Johnson-Laird suggests that delusions may be viewed as the natural consequence of failure to distinguish conceptual relevance. That is, the person takes irrelevant information and puts it in the form of disconnected experiences, then it is taken to be relevant in a manner that suggests false causal connections. Furthermore, the person takes the relevant information, in the form of counterexamples, and ignores it.

A challenge in the treatment of delusional disorders is that most patients have limited insight, and do not acknowledge that there is a problem. Most patients are treated as out-patients, although hospitalization may be required in some cases if there is a risk of harm to self or others. Individual psychotherapy is recommended rather than group psychotherapy, as patients are often quite suspicious and sensitive. Antipsychotics are not well tested in delusional disorder, but they do not seem to work very well, and often have no effect on the core delusional belief. Antipsychotics may be more useful in managing agitation that can accompany delusional disorder. Until further evidence is found, it seems reasonable to offer treatments which have efficacy in other psychotic disorders.

Psychotherapy for patients with delusional disorder can include cognitive therapy which is conducted with the use of empathy. During the process, the therapist can ask hypothetical questions in a form of therapeutic Socratic questioning. This therapy has been mostly studied in patients with the persecutory type. The combination of pharmacotherapy with cognitive therapy integrates treating the possible underlying biological problems and decreasing the symptoms with psychotherapy as well. Psychotherapy has been said to be the most useful form of treatment because of the trust formed in a patient and therapist relationship.

Supportive therapy has also been shown to be helpful. Its goal is to facilitate treatment adherence and provide education about the illness and its treatment.

Furthermore, providing social skills training has helped many persons. It can promote interpersonal competence as well as confidence and comfort when interacting with those individuals perceived as a threat.

Insight-oriented therapy is rarely indicated or contraindicated; yet there are reports of successful treatment. Its goals are to develop therapeutic alliance, containment of projected feelings of hatred, impotence, and badness; measured interpretation as well as the development of a sense of creative doubt in the internal perception of the world. The latter requires empathy with the patient's defensive position.

There is limited evidence that caffeine, in high doses or when chronically abused, may induce psychosis in normal individuals and worsen pre-existing psychosis in those diagnosed with schizophrenia.

Medications for schizophrenia are often used, especially when positive symptoms are present. Both first-generation antipsychotics and second-generation antipsychotics may be useful. Cognitive behavioral therapy has also been used.

The exact incidence and prevalence of brief psychotic disorder is not known, but it is generally considered uncommon. Internationally, it occurs twice as often in women than men, and even more often in women in the United States. It typically occurs in the late 30s and early 40s. The exact cause of brief psychotic disorder is not known. One theory suggests a genetic link, because the disorder is more common in people who have family members with mood disorders, such as depression or bipolar disorder. Another theory suggests that the disorder is caused by poor coping skills, as a defense against or escape from a particularly frightening or stressful situation. These factors may create a vulnerability to develop brief psychotic disorder. In most cases, the disorder is triggered by a major stress or traumatic event. Childbirth may trigger the disorder in some women. Approximately 1 in 10,000 women experience brief psychotic disorder shortly after childbirth. There are general medical causes of brief psychosis that should also be considered when being evaluated. Post-natal depression, HIV and AIDS, malaria, syphilis, Alzheimer's disease, Parkinson's disease, hypoglycaemia (an abnormally low level of glucose in the blood), lupus, multiple sclerosis, brain tumor and PANS.

Routine medical assessments are often prescribed to rule-out or identify a somatic cause for bipolar I symptoms. These tests can include ultrasounds of the head, x-ray computed tomography (CAT scan), electroencephalogram, HIV test, full blood count, thyroid function test, liver function test, urea and creatinine levels and if patient is on lithium, lithium levels are taken. Drug screening includes recreational drugs, particularly synthetic cannabinoids, and exposure to toxins.

In patients suffering from schizophrenia, grandiose and religious delusions are found to be the least susceptible to cognitive behavioral interventions. Cognitive behavioral intervention is a form of psychological therapy, initially used for depression, but currently used for a variety of different mental disorders, in hope of providing relief from distress and disability. During therapy, grandiose delusions were linked to patients' underlying beliefs by using inference chaining. Some examples of interventions performed to improve the patient's state were focus on specific themes, clarification of neologisms, and thought linkage. During thought linkage, the patient is asked repeatedly by the therapist to explain his/her jumps in thought from one subject to a completely different one.

Patients suffering from mental disorders that experience grandiose delusions have been found to have a lower risk of having suicidal thoughts and attempts.

Treatment consists of supportive care during the acute intoxication phase: maintaining hydration, body temperature, blood pressure, and heart rate at acceptable levels until the drug is sufficiently metabolized to allow vital signs to return to baseline. Typical and atypical antipsychotics have been shown to be helpful in the early stages of treatment. This is followed by abstinence from psychostimulants supported with counseling or medication designed to assist the individual preventing a relapse and the resumption of a psychotic state.

Studies suggest that the prevalence of paraphrenia in the elderly population is around 2-4%.

According to the DSM-5 (Diagnostic and Statistical Manual of Mental Disorders, 5th Edition), Cotard delusion falls under the category of somatic delusions, those that involve bodily functions or sensations. (Citation needed. DSM-5 does not specifically reference Cotard syndrome.)

There are no further diagnostic criteria for Cotard syndrome within the DSM-5, and identification of the syndrome relies heavily on clinical interpretation.

Cotard delusion should not be confused with Delusional Disorders as defined by the DSM-5, which involve a different spectrum of symptoms that are less severe and have lesser detrimental effect on functioning.

Because it is a rare and poorly understood condition, there is no definitive way to diagnose the Capgras delusion. Diagnosis is primarily made on psychological evaluation of the patient, who is most likely brought to a psychologist's attention by a family member or friend believed to be an imposter by the person under the delusion.

While paraphrenia can occur in both men and women, it is more common in women, even after the difference has been adjusted for life expectancies. The ratio of women with paraphrenia to men with paraphrenia is anywhere from 3:1 to 45:2

The disorder is characterized by a sudden onset of psychotic symptoms, which may include delusions, hallucinations, disorganized speech or behavior, or catatonic behavior. The symptoms must not be caused by schizophrenia, schizoaffective disorder, delusional disorder or mania in bipolar disorder. They must also not be caused by a drug (such as amphetamines) or medical condition (such as a brain tumor). The term bouffée délirante describes an acute nonaffective and nonschizophrenic psychotic disorder, which is largely similar to DSM-III-R and DSM-IV brief psychotic and schizophreniform disorders.

Symptoms generally last at least a day, but not more than a month, and there is an eventual return to full baseline functioning. It may occur in response to a significant stressor in one's life, or in other situations where a stressor is not apparent, including in the weeks following birth. In diagnosis, a careful distinction is considered for culturally appropriate behaviors, such as religious beliefs and activities. It is believed to be connected to or synonymous with a variety of culture-specific phenomena such as latah, koro, and amok.

There are three forms of brief psychotic disorder:

1. Brief psychotic disorder with a stressor, such as a trauma or death in the family.

2. Brief psychotic disorder without a stressor, there is no obvious stressor.

3. Brief psychotic disorder with postpartum onset. Usually occurs about four weeks after giving birth.

Research suggests that the severity of the delusions of grandeur is directly related to a higher self-esteem in individuals and inversely related to any individual’s severity of depression and negative self-evaluations. Lucas "et al." found that there is no significant gender difference in the establishment of grandiose delusion. However, there is a claim that ‘the particular component of Grandiose delusion’ may be variable across both genders. Also, it had been noted that the presence of GDs in people with at least grammar or high school education was greater than lesser educated persons. Similarly, the presence of grandiose delusions in individuals who are the eldest is greater than in individuals who are the youngest of their siblings.

In the DSM-IV-TR, paranoia is diagnosed in the form of:

- paranoid personality disorder ()

- paranoid schizophrenia (a subtype of schizophrenia) ()

- the persecutory type of delusional disorder, which is also called "querulous paranoia" when the focus is to remedy some injustice by legal action. ()

According to clinical psychologist P. J. McKenna, "As a noun, paranoia denotes a disorder which has been argued in and out of existence, and whose clinical features, course, boundaries, and virtually every other aspect of which is controversial. Employed as an adjective, paranoid has become attached to a diverse set of presentations, from paranoid schizophrenia, through paranoid depression, to paranoid personality—not to mention a motley collection of paranoid 'psychoses', 'reactions', and 'states'—and this is to restrict discussion to functional disorders. Even when abbreviated down to the prefix para-, the term crops up causing trouble as the contentious but stubbornly persistent concept of paraphrenia".

At least 50% of the diagnosed cases of schizophrenia experience delusions of reference and delusions of persecution. Paranoia perceptions and behavior may be part of many mental illnesses, such as depression and dementia, but they are more prevalent in three mental disorders: paranoid schizophrenia, delusional disorder (persecutory type), and paranoid personality disorder.

Because of reduced levels of trust, there can be challenges in treating PPD. However, psychotherapy, antidepressants, antipsychotics and anti-anxiety medications can play a role when an individual is receptive to intervention.

Current cognitive neuropsychology research points toward a two-factor approach to the cause of monothematic delusions. The first factor being the anomalous experience—often a neurological defect—which leads to the delusion, and the second factor being an impairment of the belief formation cognitive process.

As an example of one of these first factors, several studies point toward Capgras delusion being the result of a disorder of the affect component of face perception. As a result, while the person can recognize their spouse (or other close relation) they do not feel the typical emotional reaction, and thus the spouse does not seem like the person they once knew.

As studies have shown, these neurological defects are not enough on their own to cause delusional thinking. An additional second factor—a bias or impairment of the belief formation cognitive process—is required to solidify and maintain the delusion. Since we do not currently have a solid cognitive model of the belief formation process, this second factor is still somewhat of an unknown.

Some research has shown that delusional people are more prone to jumping to conclusions, and thus they would be more likely to take their anomalous experience as veridical and make snap judgments based on these experiences. Additionally, studies have shown that they are more prone to making errors due to matching bias—indicative of a tendency to try and confirm the rule. These two judgment biases help explain how delusion-prone people could grasp onto extreme delusions and be very resistant to change.

Researchers claim this is enough to explain the delusional thinking. However, other researchers still argue that these biases are not enough to explain why they remain completely impervious to evidence over time. They believe that there must be some additional unknown neurological defect in the patient's belief system (probably in the right hemisphere).

Individual therapy may be best suited to treat the individual's delusions. Persistence is needed in establishing a therapeutic empathy without validating the patient’s delusional system or overtly confronting the system. Cognitive techniques that include reality testing and reframing can be used. Antipsychotics and other therapeutic drugs have been used with relative success.

Oneiroid syndrome, from the Ancient Greek "" ("oneiros", meaning "dream") and "" ("eidos", meaning "form, likeness"), is dream-like fantastic derangement of consciousness with illusions and hallucinations, catatonic symptoms and kaleidoscopic quality of psychopathological experiences. It's an element of the catatonic form of schizophrenia and presents with a dream-like or nightmare-like state as a background of intensive psychopathological experiences.

Oneiroid states were first described by the German physician Wilhelm Mayer-Gross in 1924. Mayer-Gross's 1924 habilitation on "Self-descriptions of Confusional States: the Oneiroid Form of Experience" () is considered the first monograph about oneiroid state. In this monograph the psychopathological method was used (German psychiatrists called that the "phenomenological method" – phänomenologische Methode).

The oneiroid syndrome, known to European and Russian psychiatrists, but all but forgotten in the USA.

Later in 1961 the Bulgarian psychiatrist S.T. Stoyanov studied the dynamics and the course of the oneiroid syndrome in "periodic", or recurrent schizophrenia (ICD-10).

According to this research the syndrome has six stages in its course:

1. initial general-somatic and vegetative disorder

2. delusional mood

3. affective-delusional depersonalisation and derealisation

4. fantastic-delusional and affective depersonalisation and derealisation

5. illusional depersonalisation and derealisation, and

6. catatonic-oneiroid state in the culmination.

In most of the cases of the oneiroid syndrome there were crude pathological changes in the electroencephalography (EEG).

The prognosis of oneiroid catatonia is optimal, in comparison with lucid catatonia.

The attribution model has been well talked about regarding paranoid or delusional individuals. The idea is that they like to assign issues to external events. A motivation behind this characteristic may involve the need for that person to develop a better self-image and maintain self-confidence. There have been debates about whether or not paranoid individuals are more likely to have a low or high self-perception, and results have been generated for both of these hypotheses. Researchers have made a distinction between positive self-esteem and negative self-esteem revealing that paranoid delusional individuals have more of a negative self-evaluation.

When the focus is to remedy some injustice by legal action, they are sometimes called "querulous paranoia".

In cases where reporters of stalking behavior have been judged to be making false reports, a majority of them were judged to be delusional.