The purpose of this study was to examine measures of anatomical connectivity between the thalamus and lateral prefrontal cortex (LPFC) in schizophrenia and to assess their functional implications. We measured thalamocortical connectivity with diffusion tensor imaging (DTI) and probabilistic tractography in 15 patients with schizophrenia and 22 age- and sex-matched controls. The relationship between thalamocortical connectivity and prefrontal cortical blood-oxygenation-level-dependent (BOLD) functional activity as well as behavioral performance during working memory was examined in a subsample of 9 patients and 18 controls. Compared with controls, schizophrenia patients showed reduced total connectivity of the thalamus to only one of six cortical regions, the LPFC. The size of the thalamic region with at least 25% of model fibers reaching the LPFC was also reduced in patients compared with controls. The total thalamocortical connectivity to the LPFC predicted working memory task performance and also correlated with LPFC BOLD activation. Notably, the correlation with BOLD activation was accentuated in patients as compared with controls in the ventral LPFC. These results suggest that thalamocortical connectivity to the LPFC is altered in schizophrenia with functional consequences on working memory processing in LPFC.