Objectives: To investigate whether mood instability (MI) qualify as a trait marker for bipolar disorder (BD) we investigated: 1) differences in smartphone-based self-reported MI between three groups: patients with newly diagnosed BD, unaffected first-degree relatives (UR), and healthy control individuals (HC); 2) the correlation between MI and functioning, stress, and duration of illness, respectively; and 3) the validity of smartphone-based self-evaluated mood ratings as compared to observer-based ratings of depressed and manic mood. Methods: 203 patients with newly diagnosed BD, 54 UR and 109 HC were included as part of the longitudinal Bipolar Illness Onset study. Participants completed daily smartphone-based mood ratings for a period of up to two years and were clinically assessed with ratings of depression, mania and functioning. Results: Mood instability scores were statistically significantly higher in patients with BD compared with HC (mean=1.18, 95%CI: 1.12;1.24 vs 1.05, 95%CI: 0.98;1.13, p = 0.007) and did not differ between patients with BD and UR (mean=1.17, 95%CI: 1.07;1.28, p = 0.91). For patients, increased MI scores correlated positively with impaired functioning (p<0.001), increased stress level (p<0.001) and increasing number of prior mood episodes (p<0.001). Smartphone-based mood ratings correlated with ratings of mood according to sub-item 1 on the Hamilton Depression Rating Scale 17-items and the Young Mania Rating Scale, respectively (p´s<0.001). Limitation: The study had a smaller number of UR than planned. Conclusion: Mood instability is increased in patients with newly diagnosed BD and unaffected relatives and associated with decreased functioning. The findings highlight MI as a potential trait marker for BD.