Paranoia is receiving increasing attention in its own right, since it is a central experience of psychotic disorders and a marker of the health of a society. Paranoia is associated with use of the most commonly taken illicit drug, cannabis. The objective was to determine whether the principal psychoactive ingredient of cannabis - Δ<sup>9</sup>-tetrahydrocannabinol (THC) - causes paranoia and to use the drug as a probe to identify key cognitive mechanisms underlying paranoia. A randomized, placebo-controlled, between-groups test of the effects of intravenous THC was conducted. A total of 121 individuals with paranoid ideation were randomized to receive placebo, THC, or THC preceded by a cognitive awareness condition. Paranoia was assessed extensively via a real social situation, an immersive virtual reality experiment, and standard self-report and interviewer measures. Putative causal factors were assessed. Principal components analysis was used to create a composite paranoia score and composite causal variables to be tested in a mediation analysis. THC significantly increased paranoia, negative affect (anxiety, worry, depression, negative thoughts about the self), and a range of anomalous experiences, and reduced working memory capacity. The increase in negative affect and in anomalous experiences fully accounted for the increase in paranoia. Working memory changes did not lead to paranoia. Making participants aware of the effects of THC had little impact. In this largest study of intravenous THC, it was definitively demonstrated that the drug triggers paranoid thoughts in vulnerable individuals. The most likely mechanism of action causing paranoia was the generation of negative affect and anomalous experiences.