Schizophrenia patients have abnormalities of auditory information processing, theoretically associated with dysfunction of neuronal excitation. Auditory paired-stimuli (S1–S2) paradigms are used to evaluate the nature of these abnormalities. It is unknown whether patients' abnormalities during S1–S2 paradigms are attributable to specific hemispheric differences in cortical processing. The present studies used whole head magnetoencephalography and monaural or binaural versions of the paired-stimuli paradigm to evaluate auditory processing among 38 schizophrenia and 38 normal subjects. The strengths of auditory-evoked brain responses over time were quantified using distributed source reconstructions with L2 minimum norm constraint and realistic head models. For left ear stimuli, schizophrenia and normal groups did not differ on either left or right hemisphere activity over auditory cortex. For right ear and binaural stimuli, schizophrenia patients had less activity over left auditory cortex from 80 to 120 ms post-stimulus but did not differ from normal on activity over right auditory cortex. Additionally, in response to monaural stimulation, schizophrenia patients had significantly less activity than normal over right temporal parietal junction from 60 to 120 ms post-stimulus. These data are consistent with four propositions about schizophrenia: (i) right auditory cortex is functioning normally; (ii) processing of simple auditory stimuli is abnormal in left auditory cortex, probably specifically in supra-granular layers; (iii) auditory localization abilities are deficient; and (iv) auditory cortex abnormalities are not a function of deficient hemispheric communication because they are evident early in processing as long as stimuli are delivered directly to left hemisphere.