AI finds wider applications with each passing day in psychology by coming up with novelty approaches to diagnosing, treating, and researching psychological disorders. However, integrating AI into psychological practice also gave way to several legal issues on confidentiality, ethics, and liability. It can analyze speech, facial expressions, and behavioral patterns to identify early signs of a mental disorder. By applying AI to data about patients, it may suggest a personalized treatment plan, considering patient history, reactions to previous treatments, and genetic information. AI-powered telepsychology makes it possible to conduct sessions remotely, while in real time, it will continuously analyze session data to estimate progress and make real-time adjustments to the therapeutic approach. Artificial intelligence aids in analyzing large volumes of psychological data from research to comprehend general trends and come up with new treatments. Of course, personal and sensitive patient data need protection due to the requirements of data protection legislation, such as GDPR. Issues of liability in case of diagnostic or therapeutic errors made based on the analysis of AI data are to be regulated. For example, the introduction of AI into practice should be performed in compliance with professional ethical standards, such as the need for human supervision and the maintenance of the professional competence of psychologists. Therefore, special legal regulations need to be developed regarding the use of AI in psychology so that all aspects of medical standards and legislation are followed. The use of AI in the practice of psychology is a very promising direction that allows significant improvement in the quality and accessibility of psychological care. However, the application of AI itself has to be weighed in full from the legal and ethical point of view to tap AI’s full potential. The elaboration of clear regulatory mechanisms and norms will facilitate the safe, effective, and ethical use of AI in psychology while protecting patients’ rights and interests.