Accumulating evidence suggests that basic visual information processing is impaired in schizophrenia. However, deficits in peripheral vision remain largely unexplored. Here we hypothesized that sensory processing of information in the visual periphery would be impaired in schizophrenia patients and, as a result, crowding - the breakdown in target recognition that occurs in cluttered visual environments - would be stronger. Therefore, we assessed visual crowding in the peripheral vision of schizophrenia patients and healthy controls. Subjects were asked to identify a target letter that was surrounded by distracter letters of similar appearance. Targets and distracters were displayed at 8° and 10° of visual angle from the fixation point (eccentricity), and target-distracter spacing was 2°, 3°, 4°, 5°, 6°, 7° or 8° of visual angle. Eccentricity and target-distracter spacing were randomly varied. Accuracy was defined as the proportion of correctly identified targets. Critical spacing was defined as the spacing at which target identification accuracy began to deteriorate, and was assessed at viewing eccentricities of 8° and 10°. Schizophrenia patients were less accurate and showed a larger critical spacing than healthy individuals. These results indicate that crowding is stronger and sensory processing of information in the visual periphery is impaired in schizophrenia. This is in line with previous reports of preferential magnocellular dysfunction in schizophrenia. Thus, deficits in peripheral vision may account for perceptual alterations and contribute to cognitive dysfunction in schizophrenia.