The aim of this study was to investigate whether deficits in auditory processing are associated with auditory hallucinations in patients with schizophrenia. It was hypothesised that individuals with a diagnosis of schizophrenia would demonstrate deficits in processing the spectral and temporal aspects of sound and that such deficits would be more pronounced in patients with a history of auditory hallucinations (hallucinators) than those without such a history (non-hallucinators). A community sample meeting clinical criteria for schizophrenia or schizoaffective disorder (19 hallucinators, 15 non-hallucinators) and a matched healthy control group (n= 17) completed a broad range of auditory processing tasks involving pitch discrimination of modulated (temporal) and unmodulated (spectral) pure tones, auditory streaming and affective prosodic identification, as well as measures assessing current psychiatric symptoms. In all experimental tasks patients were impaired compared to controls. Specifically hallucinators performed worse than non-hallucinators and controls for pitch discrimination of unmodulated tones and auditory streaming, and both hallucinators and non-hallucinators performed significantly worse than controls for discrimination of modulated tones and affective prosody. These findings suggest that impaired temporal processing may contribute to general difficulties identifying affective speech prosody in patients with schizophrenia, while spectral processing deficits may specifically compromise melodic streaming in hallucinators, which combined with deficits in temporal processing, contribute to the experience of auditory hallucinations. ? 2013 Elsevier B.V.