Background: An unprecedented acceleration in digital mental health services happened during the COVID-19 pandemic. However, people with severe mental ill health (SMI) might be at risk of digital exclusion, partly because of a lack of digital skills, such as digital health literacy. The study seeks to examine how the use of the Internet has changed during the pandemic for people with SMI, and explore digital exclusion, symptomatic/health related barriers to internet engagement, and digital health literacy. Methods: Over the period from July 2020 to February 2022, n = 177 people with an SMI diagnosis (psychosis-spectrum disorder or bipolar affective disorder) in England completed three surveys providing sociodemographic information and answering questions regarding their health, use of the Internet, and digital health literacy. Results: 42.5% of participants reported experiences of digital exclusion. Cochrane-Q analysis showed that there was significantly more use of the Internet at the last two assessments (80.8%, and 82.2%) compared to that at the beginning of the pandemic (65.8%; ps < 0.001). Although 34.2% of participants reported that their digital skills had improved during the pandemic, 54.4% still rated their Internet knowledge as being fair or worse than fair. Concentration difficulties (62.6%) and depression (56.1%) were among the most frequently reported symptomatic barriers to use the Internet. The sample was found to have generally moderate levels of digital health literacy (M = 26.0, SD = 9.6). Multiple regression analysis showed that higher literacy was associated with having outstanding/good self-reported knowledge of the Internet (ES = 6.00; 95% CI: 3.18–8.82; p < .001), a diagnosis of bipolar disorder (compared to psychosis spectrum disorder – ES = 5.14; 95% CI: 2.47–7.81; p < .001), and being female (ES = 3.18; 95% CI: 0.59–5.76; p = .016). Conclusions: These findings underline the need for training and support among people with SMI to increase digital skills, facilitate digital engagement, and reduce digital engagement, as well as offering non-digital engagement options to service users with SMI.