Background: There is limited Canadian evidence on the impact of socio-environmental factors on psychosis risk. We sought to examine the relationship between area-level indicators of marginalization and the incidence of psychotic disorders in Ontario. Methods: We conducted a retrospective cohort study of all people aged 14 to 40 years living in Ontario in 1999 using health administrative data and identified incident cases of psychotic disorders over a 10-year follow-up period. Age-standardized incidence rates were estimated for census metropolitan areas (CMAs). Poisson regression models adjusting for age and sex were used to calculate incidence rate ratios (IRRs) based on CMA and area-level marginalization indices. Results: There is variation in the incidence of psychotic disorders across the CMAs. Our findings suggest a higher rate of psychotic disorders in areas with the highest levels of residential instability (IRR = 1.26, 95% confidence interval [CI], 1.18 to 1.35), material deprivation (IRR = 1.30, 95% CI, 1.16 to 1.45), ethnic concentration (IRR = 1.61, 95% CI, 1.38 to 1.89), and dependency (IRR = 1.35, 95% CI, 1.18 to 1.54) when compared to areas with the lowest levels of marginalization. Marginalization attenuates the risk in some CMAs. Conclusions: There is geographic variation in the incidence of psychotic disorders across the province of Ontario. Areas with greater levels of marginalization have a higher incidence of psychotic disorders, and marginalization attenuates the differences in risk across geographic location. With further study, replication, and the use of the most up-to-date data, a case may be made to consider social policy interventions as preventative measures and to direct services to areas with the highest risk. Future research should examine how marginalization may interact with other social factors including ethnicity and immigration.