The association between rs1344706, located in an intron of ZNF804A, and psychosis is statistically robust but biologically unexplained, reflecting the lack of understanding of the roles of ZNF804A and the unknown functionality of the SNP. Herein, we report findings that advance both these questions. We identify a novel mRNA isoform, ZNF804AE3E4, in human brain that appears selectively modulated by rs1344706 during fetal life. In contrast, full-length ZNF804A mRNA shows no genotype effects. In consequence, we propose that the ZNF804AE3E4 isoform mediates, at least partly, the association of rs1344706 with psychosis. The relative expression of ZNF804AE3E4 mRNA compared with the full-length transcript was decreased in schizophrenia and increased in major depressive disorder and bipolar disorder. We also provide the first evidence, to our knowledge, that ZNF804A is translated in human brain and is localized primarily to pyramidal neurons.