Objective: Studies have demonstrated that reduced drinking without total abstinence is associated with improved outcomes in outpatients with alcohol use disorder (AUD). We sought to examine this question in AUD inpatients who have comorbid anxiety disorders, a common presentation in AUD. Method: This is a secondary analysis of data from a randomized controlled trial for N = 241 inpatients with AUD and comorbid anxiety disorders. Change from baseline drinking level was measured at 1-, 4-, and 12-months postdischarge, and psychological and functional outcomes were measured at 4- and 12-months postdischarge. Three groups were compared: abstinent, reduced (reduced drinking by 1-3 World Health Organization drinking risk levels without abstinence), or nonreduced (maintained or increased drinking risk level). Results: At 1-, 4-, and 12-months posttreatment, most patients reported abstinence (83, 63, and 60%), and 11, 25, and 26% reported drinking at a reduced level. Drinking reductions achieved at 1-month posttreatment were maintained at 12-month posttreatment by 74% of participants. Overall, the abstinent group reported the best psychological and functional outcomes at follow-ups, followed by the reduced group. Few differences were observed between reducers and nonreducers, but reducers reported significantly better alcohol dependence severity and alcohol-related problems than nonreducers. Conclusions: Though abstinence was associated with the best outcomes in this abstinence-based treatment sample, we conclude that reduced drinking is also associated with significant improvements in alcohol-related outcomes in inpatients with AUD and comorbid anxiety disorders. Public Health Significance Statement The results of this study indicate that reducing one's drinking by one to three WHO risk levels following inpatient treatment is associated with beneficial alcohol-related outcomes (e.g., fewer alcohol-related problems) at 1-year posttreatment. However, abstinence was associated with larger improvement in psychological outcomes than reducing drinking, as well as some functional outcomes (e.g., more days of work, fewer interpersonal problems).