Recent studies have identified neuregulin1 as a probable susceptibility gene for schizophrenia and bipolar disorder. However, little is known about how this gene may affect brain function to increase vulnerability to these disorders. The present investigation examined the impact of neuregulin1 genotype on brain function in patients with schizophrenia, patients with bipolar I disorder and healthy volunteers. We used functional magnetic resonance imaging to measure brain responses during a verbal fluency task in a total of 115 subjects comprising 41 patients with schizophrenia, 29 patients with bipolar disorder and 45 healthy volunteers. We then used statistical parametric mapping to estimate the main effects of diagnostic group, the main effect of genotype and their interaction. We tested the hypothesis that the high-risk variant of neuregulin1 would be associated with altered prefrontal function. In all three diagnostic groups, the high-risk variant of neuregulin1 was associated with greater deactivation in the left precuneus. In addition, there was an interaction between diagnosis and genotype in two regions of the prefrontal cortex. The right inferior frontal gyrus expressed increased activation in individuals with the high-risk variant, but only in patients with schizophrenia. Conversely, the right posterior orbital gyrus expressed increased activation in individuals with the high-risk variant, but only in patients with bipolar disorder. Our results suggest that genetic variation in neuregulin1 has a measurable impact on brain function and provide preliminary evidence for a disease-specific pattern of gene action in different regions of the prefrontal cortex.