This longitudinal study examined characteristics of a discrete mood episode that predict re-hospitalization for bipolar disorder, highlighting associated cognitive dysfunction as a potential mechanism linking episode severity and relapse. Eighty-two inpatients meeting DSM-IV-TR diagnostic criteria for bipolar I disorder completed the study. Twenty-two of the patients were readmitted to the hospital within 3 months of discharge. The study compared these patients to the remaining 60 patients who were not readmitted to the hospital during this period. Patients were compared on several factors related to the severity of the mood episode and the course of illness more generally. Analysis also compared the groups on measures of mood and neuro-cognitive functioning, assessed 24–48 h before initial hospitalization discharge. Re-hospitalized patients had longer initial hospital stays (t = −3.10, p < 0.01), higher rates of psychosis while in the hospital (Chi square = 5.1, p < 0.02), and lower GAF scores on discharge (t = 2.37, p < 0.05). The groups did not differ in age of illness onset or number of previous psychiatric hospitalizations. With respect to neuro-cognitive functioning, analysis indicated poorer performance for re-hospitalized patients on measures of executive functioning (Wilks’ Lambda, F (7, 71) = 9.0, p < 0.001), IQ (Wilks’ Lambda, F (2, 76) = 5.06, p < 0.01), and memory (Wilks’ Lambda, F (6,72) = 4.19, p < 0.001). Trends in the expected direction emerged for attention/working memory tests (Wilks’ Lambda, F (7, 71) = 1.79, p < 0.10). Results highlight features of a discrete mood episode associated with increased rates of re-hospitalization. This study observed connections among episode severity, cognitive dysfunction at hospital discharge and re-hospitalization.