Schizophrenia patients display impaired performance and brain activity during facial affect recognition. These impairments may reflect stimulus-driven perceptual decrements and evaluative processing abnormalities. We differentiated these two processes by contrasting responses to identical stimuli presented under different contexts. Seventeen healthy controls and 16 schizophrenia patients performed an fMRI facial affect detection task. Subjects identified an affective target presented amongst foils of differing emotions. We hypothesized that targeting affiliative emotions (happiness, sadness) would create a task demand context distinct from that generated when targeting threat emotions (anger, fear). We compared affiliative foil stimuli within a congruent affiliative context with identical stimuli presented in an incongruent threat context. Threat foils were analysed in the same manner. Controls activated right orbitofrontal cortex (OFC)/ventrolateral prefrontal cortex (VLPFC) more to affiliative foils in threat contexts than to identical stimuli within affiliative contexts. Patients displayed reduced OFC/VLPFC activation to all foils, and no activation modulation by context. This lack of context modulation coincided with a 2-fold decrement in foil detection efficiency. Task demands produce contextual effects during facial affective processing in regions activated during affect evaluation. In schizophrenia, reduced modulation of OFC/VLPFC by context coupled with reduced behavioural efficiency suggests impaired ventral prefrontal control mechanisms that optimize affective appraisal.