Background: First-episode psychosis (FEP) is a critical stage in psychotic disorders, in terms of clinical and functional outcome. Deficits in facial emotion recognition and impaired clinical insight have been linked to poorer functioning, but their combined role remains unclear. This study examined whether insight impairment moderates the association between facial emotion recognition and personal and social functioning in FEP. Methods: Data were drawn from the Athens FEP Research Study and analyzed cross-sectionally at the one-month follow-up. After applying the BFRT ≥20 criterion, the analytic sample comprised 175 participants. Facial emotion recognition was assessed with the Degraded Facial Affect Recognition task (DFAR), insight impairment with PANSS item G12, and functioning with the Personal and Social Performance Scale (PSP). The primary outcome was PSP total score; PSP domain scores were treated as exploratory outcomes. Separate moderation models were estimated for each DFAR index and PSP outcome, adjusting for age, gender, Full Scale IQ, and PANSS negative symptoms. Missing data were handled with multiple imputation by chained equations (50 imputations), and pooled estimates were calculated using Rubin’s rules. Complete-case analyses served as sensitivity checks. False discovery rate correction was applied to interaction p-values, and effect sizes were reported as ΔR² and Cohen’s f². Results: For the primary outcome (PSP total score), none of the interactions between insight impairment and the DFAR indices reached nominal significance. Among exploratory outcomes, only the CorrectNeutral × insight impairment interaction for PSP disturbing/aggressive behavior reached nominal significance (β = 0.671, SE = 0.276, p = .015, ΔR² = .0335, f² = .0378), but it did not survive correction for multiple testing. Insight impairment and negative symptoms showed more consistent associations with poorer functioning than facial emotion recognition. Conclusions: The findings do not support a moderating effect of insight on the association between facial emotion recognition and functioning in FEP. Poorer insight and greater negative symptom severity were more consistently associated with worse functioning than facial emotion recognition itself.