Olfactory identification deficit appears to be an enduring feature of schizophrenia, but it is unclear whether it is specific to schizophrenia or present in psychotic disorders in general. The aim of the present study was to compare olfactory identification and olfactory preference in schizophrenia and bipolar disorder. Individuals with schizophrenia or bipolar disorder and demographically matched healthy participants were given the University of Pennsylvania Smell Identification Test (UPSIT) to assess olfactory identification ability. To examine olfactory hedonic judgment, participants were also asked to indicate their preference for each UPSIT item on a 5-point rating scale, immediately after odor identification. Clinical symptoms and social competence were also assessed. Both schizophrenic and bipolar groups showed olfactory identification deficits compared with the healthy controls, but schizophrenic patients were more impaired than bipolar patients on the UPSIT accuracy. Interestingly, both bipolar and schizophrenic patients rated odors to be more pleasant than did healthy controls, but all groups preferred odors that they could correctly identify to unidentified smells. Restricted range of preference ratings was associated with the severity of negative symptoms in schizophrenia, and with mania in bipolar disorder. Social competence was associated with better olfactory identification performance. These findings suggest that olfactory identification and preference are compromised in bipolar disorder as well as in schizophrenia, but the precise nature of these abnormalities needs to be further elucidated.