Cognitive deficits, including impaired verbal memory, are prominent in schizophrenia and lead to increased disability. Functional neuroimaging of patients with schizophrenia performing memory tasks has revealed abnormal activation patterns in prefrontal cortex and temporo-limbic regions. Aberrant fronto-temporal interactions thus represent a potential pathophysiological mechanism underlying verbal memory deficits, yet this hypothesis of disturbed connectivity is not tested directly with standard activation studies. We performed within-subject correlations of frontal and temporal timeseries to measure functional connectivity during verbal encoding. Our results confirm earlier findings of aberrant fronto-temporal connectivity in schizophrenia, and extend them by identifying distinct alterations within dorsal and ventral prefrontal cortex. Relative to healthy controls, patients with schizophrenia had reduced connectivity between the dorsolateral prefrontal cortex (DLPFC) and temporal lobe areas including parahippocampus and superior temporal gyrus. In contrast, patients showed increased connectivity between a region of ventrolateral prefrontal cortex (VLPFC) and these same temporal lobe regions. Higher temporal-DLPFC connectivity during encoding was associated with better subsequent recognition accuracy in controls, but not patients. Temporal-VLPFC connectivity was uncorrelated with recognition accuracy in either group. The results suggest that reduced temporal-DLPFC connectivity in schizophrenia could underlie encoding deficits, and increased temporal-VLPFC connectivity may represent an ineffective compensatory effort.