Smoking potent cannabis was linked to 24% of new psychosis cases analysed in a study by King's College London.
The research suggests the risk of psychosis is three times higher for users of potent "skunk-like" cannabis than for non-users.
The study of 780 people was carried out by KCL's Institute of Psychiatry, Psychology and Neuroscience.
A Home Office spokesman said the report underlines the reasons why cannabis is illegal.
Scientists found the risk of psychosis was five times higher for those who use it every day compared with non-users.
They also concluded the use of hash, a milder form of the drug, was not associated with increased risk of psychosis.
Psychosis refers to delusions or hallucinations that can be present in certain psychiatric conditions such as schizophrenia and bipolar disorder.
Risk increased 'threefold'
"Compared with those who had never tried cannabis, users of high potency skunk-like cannabis had a threefold increase in risk of psychosis,' said Dr Marta Di Forti, lead author on the research.
She added: "The results show that psychosis risk in cannabis users depends on both the frequency of use and cannabis potency."
Dr Di Forti told BBC Radio 4's Today programme that the availability of skunk-like cannabis was becoming more widespread.
'I was a wreck'
Cath from Berkshire, who asked to remain anonymous, believes smoking skunk caused her to experience mental health problems.
"I dabbled with a friends' group in my early 20s, and went from someone who had never experienced any mental health issues whatsoever, to an absolute wreck.
"I was terrified of leaving the house, and I became petrified of death, of the mysteries of the universe, and of being alone. You name it, I was terrified of it.
"It took about six years to feel normal again and now, almost 20 years later, I have absolutely no doubt that my issues were triggered by casually and naively smoking this so called 'soft' drug.
"For years I have shuddered as campaigners have sought to declassify or promote the product as I understand first-hand the hidden yet, until now, unspoken dangers of this awful drug."
"In London, it's very difficult to find anything else," Dr Di Forti said.
"There were lots of reports from police across the UK saying we have become a great producer of skunk. And not only do we use it locally but we export, so this is a Made in England product."
Someone suffering from psychosis would often be "extremely paranoid and become very suspicious" about the people around them, she added.
She has called for "a clear public message" to cannabis users, comparable to medical advice on alcohol and tobacco.
GPs should be encouraged to ask how often and what type of cannabis patients use, she added,
A Home Office spokesman said the findings backed up the government's approach: "Drugs such as cannabis are illegal because scientific and medical evidence demonstrates they are harmful.
"This report serves to emphasise how they can destroy lives and communities."
Skunk contains more THC - the main psychoactive ingredient - than other types of cannabis.
Unlike skunk, hashish - cannabis resin - contains substantial quantities of another chemical called cannabidiol or CBD and research suggests this can act as an antidote to the THC, counteracting psychotic side effects.
Sir Robin Murray, professor of psychiatric research at King's, commented: "This paper suggests that we could prevent almost one quarter of cases of psychosis if no-one smoked high potency cannabis.
"This could save young patients a lot of suffering and the NHS a lot of money."
The research was carried out over several years, comparing 410 patients aged 18-65 who reported a first episode of psychosis at a south London psychiatric hospital with 370 healthy participants within the same age range from the same area of London.
It will be published later this week in the Lancet Psychiatry.
Rosanna O'Connor, director of alcohol, drugs and tobacco at Public Health England, responded: "No drug use is without risk as this report demonstrates.
"Anyone having problems with drug use should seek help from their local specialist drug services. It is important to remember that treatment for all types of drug problems, including cannabis, are readily available and very effective".
Cannabis user Robert, from Hertfordshire experienced a "temporary psychosis" after taking home-grown cannabis in his 20s.
"It was utterly terrifying, and the worst night of my life," he told the BBC News website.
"As someone affected by this issue it is hard watching mainstream media, particularly comedy films, portraying cannabis as a harmless life-enhancing substance with limited ill-effects - it's simply not true."
Another person who contacted the BBC website felt that legalising cannabis would allow varieties to be regulated.
Phil, from Cambridgeshire, said: "Speaking as a 'toker' for past 25 years, super skunk is the term they should be using.
"The cause of all this is the illegality. If things were more open and informed, people could buy 'saner' variety seeds."