Several studies have demonstrated impaired facial expression recognition in schizophrenia. Few have examined the neural basis for this; none have compared the neural correlates of facial expression perception in different schizophrenic patient subgroups. We compared neural responses to facial expressions in 10 right-handed schizophrenic patients (five paranoid and five non-paranoid) and five normal volunteers using functional Magnetic Resonance Imaging (fMRI). In three 5-min experiments, subjects viewed alternating 30-s blocks of black-and-white facial expressions of either fear, anger or disgust contrasted with expressions of mild happiness. After scanning, subjects categorised each expression. All patients were less accurate in identifying expressions, and showed less activation to these stimuli than normals. Non-paranoids performed poorly in the identification task and failed to activate neural regions that are normally linked with perception of these stimuli. They categorised disgust as either anger or fear more frequently than paranoids, and demonstrated in response to disgust expressions activation in the amygdala, a region associated with perception of fearful faces. Paranoids were more accurate in recognising expressions, and demonstrated greater activation than non-paranoids to most stimuli. We provide the first evidence for a distinction between two schizophrenic patient subgroups on the basis of recognition of and neural response to different negative facial expressions.