Patients who suffer from the devastating psychiatric illness schizophrenia are plagued by hallucinations, bizarre behavior, and delusional ideas, such as believing that they are controlled by malevolent outside forces. A fundamental human cognitive operation that may contribute to these hallmark symptoms is the ability to maintain accurate and coherent self-referential processing over time, such as occurs during reality monitoring (distinguishing self-generated from externally perceived information). However, the neural bases for a disturbance in this operation in schizophrenia have not been fully explored. Using functional magnetic resonance imaging, we asked clinically stable schizophrenia patients to remember whether or not they had generated a target word during an earlier sentence completion task. We found that, during accurate performance of this self-referential source memory task, the schizophrenia subjects manifest a deficit in rostral medial prefrontal cortex (mPFC) activity--a brain region critically implicated in both the instantiation and the retrieval of self-referential information in healthy subjects. Impairment in rostral mPFC function likely plays a key role in the profound subjective disturbances that characterize schizophrenia and that are the aspect of the disorder most troubling to patients and to society at large.