BACKGROUND Schizophrenia is associated with large effect-size deficits in auditory sensory processing, as reflected in impaired delayed-tone matching performance. The deficit may reflect either impaired sensory precision, which would be indicative of neural dysfunction within auditory sensory (temporal) regions, or of increased distractibility, which would be indicative of impaired prefrontal function. The present study evaluates susceptibility of schizophrenic subjects to same-modality distraction to determine whether patients fit a "bitemporal" or "prefrontal" model of sensory dysfunction. METHODS Tone-matching ability was evaluated in 15 first-episode patients, 18 outpatients with chronic illness, and 21 patients in long-term residential care, relative to 32 nonpsychiatric controls of a similar age. A staircase procedure determined individual thresholds for attaining criterion level correct performance. RESULTS Tone-matching thresholds in the absence of distractors were significantly elevated in patients in long-term residential care relative to all other groups (P<.001). The effect size (d) of the difference relative to controls was extremely large (SD, 1.95). Schizophrenic patients, even those with elevated tone-matching thresholds, showed no increased susceptibility to auditory distraction (P =.42). Deficits in tone-matching performance in subjects with chronic illness could not be attributed to medication status or level of symptoms. CONCLUSIONS These findings suggest that sensory processing dysfunction in schizophrenia is particularly severe in a subgroup of patients who can be considered poor-outcome based on their need for long-term residential treatment. Furthermore, the absence of increased auditory distractibility argues against prefrontal dysfunction as an origin for auditory sensory imprecision in schizophrenia. Arch Gen Psychiatry. 2000;57:1149-1155.