Children who are bullied, or are bullies themselves, are at increased risk of experiencing hallucinations and hearing voices.
British researchers looked at a group of children from birth to try to determine the effect of bullying in relation to psychosis later in life.
They found that children who are bullied, who are bullies themselves, or both (known as bully-victims), are at an increased risk of suffering psychotic experiences later in life.
Psychotic experiences can include feelings of paranoia, seeing things that are not there and hearing voices. If these persist, a psychotic disorder, such as schizophrenia, may be diagnosed.
Author Professor Dieter Wolke, of the University of Warwick, said: "We want to eradicate the myth that bullying at a young age could be viewed as a harmless rite of passage that everyone goes through - it casts a long shadow over a person's life and can have serious consequences for mental health."
The study found that children who were bullied and were bullies themselves were almost five times more likely to suffer psychotic experiences at the age of 18. Furthermore, children were also at an increased risk even if they had only experienced bullying for short periods of time.
Professor Wolke said: "These numbers show exactly how much childhood bullying can impact on psychosis in adult life. It strengthens on the evidence base that reducing bullying in childhood could substantially reduce mental health problems.
"The benefit to society would be huge, but of course, the greatest benefit would be to the individual."
He added that interventions against bullying should start in primary schools in order to 'prevent long-term serious effects on children's mental health'.
He said: "This clearly isn't something that can wait until secondary school to be resolved. The damage may already have been done."
Details of the findings are published in the journal, Psychological Medicine.