Perceptual organization of auditory information is influenced by both the physical characteristics and the categorization of irrelevant information. This study sought to determine the degree to which schizophrenia patients could utilize acoustic properties and contextual cues (top-down factors) to segregate relevant from irrelevant material in an auditory stream. On a modification of I. Neath, A. M. Surprenant, and R. G. Crowder's (1993) auditory suffix task, both schizophrenia and control participants demonstrated better recall of relevant information when irrelevant information had different physical characteristics, compared with when both arose from the same source. In contrast, schizophrenia patients were unaffected by a contextual manipulation that allowed controls to reduce the interfering effect of an irrelevant stimulus. These data suggest that a reduced ability to utilize contextual information plays a role in the perceptual organization dysfunction in schizophrenia.