Genetics provides two major opportunities for understanding human disease-as a transformative line of etiological inquiry and as a biomarker for heritable diseases. In psychiatry, biomarkers are very much needed both for research and treatment given the heterogenous populations identified by current phenomenologically-based diagnostic systems. To date, however, useful and valid biomarkers have been scant due to the inaccessibility and complexity of human brain tissue and consequent lack of insight into disease mechanisms. Genetic biomarkers are therefore especially promising for psychiatric disorders. Genome-wide association studies (GWAS) of common diseases have matured over the last decade, generating the knowledge base for increasingly informative individual-level genetic risk prediction. In this review, we discuss fundamental concepts involved in computing genetic risk with current methods, strengths and weaknesses of various approaches, assessments of utility, and applications various psychiatric disorders and related traits. Although genetic risk prediction has become increasingly straightforward to apply and common in published studies, there are important pitfalls to avoid. At present, the clinical utility of genetic risk prediction is still low; however, there is significant promise for future clinical applications as the ancestral diversity and sample sizes of GWAS increase. We discuss emerging data and methods aimed at improving the value of genetic risk prediction for disentangling disease mechanisms and stratifying subjects for epidemiological and clinical studies. For all applications,