Background Anxiety disorders are associated with substantial functional limitations but the course of functioning following symptom remission remains largely unknown. Method Using data from the Netherlands Study of Depression and Anxiety (NESDA), we examined the 2-year trajectories of functioning in participants with chronic (n=586) or remitting anxiety disorders (n=385) and in healthy controls (n=585). In participants with remitting anxiety disorders, we identified predictors of functioning from among sociodemographic, clinical and vulnerability variables. Data were analysed using linear mixed models (LMMs). Functioning was assessed with the World Health Organization Disability Assessment Schedule II (WHO DAS II). Results At baseline, participants with remitting anxiety disorders functioned significantly better than those with chronic anxiety disorders, but significantly worse than controls. In both anxiety disorder groups, most impairment was reported in social functioning, occupational functioning and cognition. During the follow-up, functioning improved in both groups, probably due to treatments received. Participants who achieved symptom remission experienced moderate improvements in social functioning and cognition but not in occupational functioning. Of those who remitted, 45.8% reported functioning scores similar to healthy controls whereas 28.5% still functioned at the level of those with chronic anxiety disorders. Worse functioning was predicted by severe anxiety disorders, use of psychological treatment, co-morbid depressive disorders and maladaptive personality traits. Conclusions In anxiety disorders, symptom remission is accompanied by improvements in functioning but significant functional impairments may persist because of co-morbid disorders, lower functioning prior to the onset of the anxiety disorder or residual subthreshold anxiety symptoms. © 2013 Cambridge University Press.