Social anxiety disorder (SaD) or social phobia is a co-morbid affective disorder in schizophrenia, present in up to one in three individuals. We employ 'social rank' theory to predict that one pathway to social anxiety in schizophrenia is triggered by the anticipation of a catastrophic loss of social status that the stigma of schizophrenia can entail. A group of 79 people with a first episode of psychosis were assessed for social anxiety: hypotheses were tested comparing 23 socially anxious and 56 non-anxious patients on measures of cognitive appraisals of shame/stigma of psychosis and perceived social status, controlling for depression, psychotic symptoms and general psychopathology. Participants with social anxiety experienced greater shame attached to their diagnosis and felt that the diagnosis placed them apart from others, i.e., socially marginalised them and incurred low social status. We propose a stigma model of social anxiety that makes testable predictions about how the shame beliefs may contaminate social interaction and thereby exacerbate and maintain social phobia.