Introduction Chronic rhinosinusitis with nasal polyps (CRSwNP) often leads to impaired olfactory function and reduced quality of life. When conservative treatments such as nasal irrigation and topical steroids fail, functional endoscopic sinus surgery (FESS) is often necessary, because it improves symptoms and enhances quality of life. Materials and methods A total of 88 patients was included in this prospective study. All subjects underwent an extensive examination both presurgically and 4 months after operations including nasal endoscopy and psychophysical olfactory testing (Sniffin' Sticks). Moreover, disease-specific quality of life was assessed and presurgical CT scans were rated regarding the opacification of the paranasal sinuses. Results Presurgically psychophysical tests showed an overall olfactory dysfunction. Olfactory test results (TDI score) correlated with endoscopic (Lund-Kennedy and Lildtholdt score) and CT scores (Lund-Mackay and TOCS scores). Four months after surgery olfactory function was enhanced and quality of life significantly showed an overall improvement. However, the outcome was dependent on the extent of presurgical olfactory function: olfaction and quality of life improved most pronounced in anosmics compared to hyposmic and especially normosmic patients. Conclusions This study confirmed that FESS in CRSwNP leads to a significant improvement of both olfaction and disease-specific quality of life. Moreover, preoperative psychophysical assessment of the extent of olfactory dysfunction can help to objectively assess possible risks and expected benefits of the surgery in terms of olfaction and quality of life.