Working memory (WM) dysfunction in schizophrenia is characterized by inefficient WM recruitment and reduced capacity, but it is not yet clear how these relate to one another. In controls practice of certain cognitive tasks induces automatization, which is associated with reduced WM recruitment and increased capacity of concurrent task performance. We therefore investigated whether inefficient function and reduced capacity in schizophrenia was associated with a failure in automatization. FMRI data was acquired with a verbal WM task with novel and practiced stimuli in 18 schizophrenia patients and 18 controls. Participants performed a dual-task outside the scanner to test WM capacity. Patients showed intact performance on the WM task, which was paralleled by excessive WM activity. Practice improved performance and reduced WM activity in both groups. The difference in WM activity after practice predicted performance cost in controls but not in patients. In addition, patients showed disproportionately poor dual-task performance compared to controls, especially when processing information that required continuous adjustment in WM. Our findings support the notion of inefficient WM function and reduced capacity in schizophrenia. This was not related to a failure in automatization, but was evident when processing continuously changing information. This suggests that inefficient WM function and reduced capacity may be related to an inability to process information requiring frequent updating.