OBJECTIVE: The multiple disorders of selective attention found in schizophrenia could be secondary to disturbances in sensory processing. The authors investigated this possibility by using an event-related potential index of auditory sensory memory, called "mismatch negativity." METHOD: Medicated (N = 11) and neuroleptic-free (N = 11) patients with schizophrenia and patients with bipolar affective disorder (N = 11) were compared with age- and sex-matched healthy comparison subjects. Auditory stimuli were presented while the subjects were distracted with an attention-demanding visual task. Event-related potentials were elicited by infrequently occurring auditory stimuli (deviants) and by regularly presented auditory stimuli (standards), which differed slightly in duration. The difference in amplitude between the event-related potentials elicited by the deviant and standard stimuli was the mismatch negativity. RESULTS: The amplitude of the mismatch negativity was significantly lower in both groups of schizophrenic patients than in the healthy comparison subjects. Mismatch negativity amplitude was significantly correlated with ratings of negative schizophrenic symptoms but not with positive symptoms. Compared with the matched comparison subjects, the bipolar affective disorder patients did not show lower amplitude of mismatch negativity. There was a significant negative correlation between age and mismatch negativity amplitude. CONCLUSIONS: The abnormal auditory sensory memory processing indicated by low mismatch negativity amplitude in the schizophrenic patients cannot be accounted for by neuroleptic medication status. Because this abnormality was significantly related to measures of negative symptoms only, it may be a chronicity marker or reflect a predisposition to the development to schizophrenia. These findings implicate the auditory cortex in the pathophysiology of schizophrenia.