We aimed to examine the prevalence of psychotic experiences (PEs) in children with familial high risk of schizophrenia (FHR-SZ) or bipolar disorder (FHR-BP) and, in exploratory analyses, to examine the possible associations between PEs and mental disorders as well as level of functioning. A cohort of seven-year-old children with FHR-SZ (N = 199), FHR-BP (N = 118) and controls (N = 196) was recruited through Danish nationwide registers. Lifetime PEs were assessed through interviews using the psychosis section of the ‘Schedule for Affective Disorders and Schizophrenia for School-Age Children - Present and Lifetime Version’ (K-SADS-PL). Lifetime DSM-IV diagnoses were ascertained through K-SADS-PL and the level of functioning of the children through ‘Children's Global Assessment Scale’. Both children with FHR-SZ (OR = 2.9, 95% CI = 1.4–6.2, p = 0.005) and FHR-BP (OR = 2.9, 95% CI = 1.3–6.7, p = 0.011) had an increased risk of having experienced “severe” PEs compared with controls. In the overall cohort PEs were associated with any lifetime mental disorder, Attention-Deficit/Hyperactivity Disorder, anxiety disorders and a lower level of functioning. The findings of a higher proportion of high risk children reporting PEs could represent an early manifestation of later more severe psychopathology or simply an unspecific transitory symptom. Future follow-up studies of this cohort will explore the predictive value of the occurrence of PEs at age seven.