An altered sense of self-awareness and agency has been proposed to underlie symptoms of schizophrenia. In this study, we used the enfacement illusion paradigm - in which perception of another person's face leads to changes in perception of one's own peri-personal space - to examine the brain correlates of the sense of agency and its potential disruption in schizophrenia. Thirty-three schizophrenic patients and 27 healthy controls underwent fMRI scanning during performance of a task designed to elicit the enfacement illusion. Activations were examined using whole-brain analysis and also in an a priori identified region of interest (ROI) in the temporoparietal junction (TPJ), a region that has been described as involved in self/other differentiation and sense of agency. Both groups showed a pattern of cortical activation involving the pre and postcentral cortex, Rolandic operculum, insula, parietal, temporal and occipital cortex bilaterally as well as TPJ (but only right-side in patients). Examination of the TPJ ROI revealed significantly reduced activation on the left in the patients that was associated with poorer insight. The findings suggest brain functional abnormality in schizophrenia related to the formation or maintenance of processes related to self and/or agency. Decreased function in the TPJ may have a role in the impaired insight seen in patients with the disorder.