Background and Hypothesis: Affective instability (AffI) is associated with psychosis, and cannabis use is a known risk factor for psychosis. Previous evidence suggests that AffI may itself be a risk factor for cannabis use. This study aimed to investigate the longitudinal relationship between AffI and cannabis use during adolescence and the development of psychosis in early adulthood. Study Design: Data from the Avon Longitudinal Study of Parents and Children were analyzed to estimate the prevalence of AffI at age 12 and cannabis use frequency at ages 13, 14, 15, 17, 20, and 22. Psychotic experiences (PEs) and psychotic disorder (PD) were measured at age 24 using the Psychosis-like Symptoms Interview. Latent class growth analysis identified cannabis use trajectories and odds ratios (OR) were calculated to assess associations between adolescent AffI, different cannabis use patterns and psychotic outcomes. Path analysis was used to examine cannabis use as a mediator between AffI and psychotic outcomes. Study Results: Individuals with AffI were significantly more likely to develop psychotic outcomes at age 24 [PEs: OR = 4.08 (2.35–7.08); PD: OR = 4.74 (2.00–11.27)]. Regular cannabis users from ages 13–22 had an increased likelihood of developing psychotic outcomes compared with non-users [PEs: OR = 4.40 (2.79–6.92); PD: OR = 3.13 (1.25–7.88)]. Regular cannabis use partially mediated the relationship between AffI and both PEs and PD. Conclusions: Adolescents with AffI are at a higher risk of developing psychosis in early adulthood. Regular cannabis use mediates this risk, suggesting the potential benefit of targeted prevention strategies for at-risk youth.