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OBJECTIVE: This study was an examination of basal ganglia dysfunction in schizophrenia using functional magnetic resonance imaging (fMRI). METHOD: The authors used a motor sequencing task to investigate activation of the caudate, anterior putamen plus globus pallidus, and posterior putamen plus globus pallidus in eight subjects with schizophrenia and 12 group-matched comparison subjects. Differences in activation of the thalamus, the target of direct output from the globus pallidus, were also examined. RESULTS: The schizophrenia subjects showed significant bilateral deficits in the posterior putamen, globus pallidus, and thalamus but not the anterior putamen plus globus pallidus or caudate. Functional connectivity analysis revealed that the deficits in thalamic activation were related to deficits in posterior putamen and globus pallidus activation. CONCLUSIONS: These results provide fMRI evidence for basal ganglia dysfunction in subjects with schizophrenia and suggest that this deficit results in disrupted outflow to the thalamus. These deficits may underlie the behavioral impairments in goal-directed action observed in schizophrenia.