Impairments in social cognitive functioning are well documented in schizophrenia, however the neural basis of these deficits is unclear. A recent explanatory model of social cognition centers upon the activity of mirror neurons, which are cortical brain cells that become active during both the performance and observation of behavior. Here, we test for the first time whether mirror neuron functioning is reduced in schizophrenia. Fifteen individuals with schizophrenia or schizoaffective disorder and fifteen healthy controls completed a transcranial magnetic stimulation (TMS) experiment designed to assess mirror neuron activation. While patients demonstrated no abnormalities in cortical excitability, motor facilitation during action observation, putatively reflecting mirror neuron activity, was reduced in schizophrenia. Dysfunction within the mirror neuron system may contribute to the pathophysiology of schizophrenia.