Schizophrenia is a severe mental disorder with often a chronic course. Neuroimaging studies report brain abnormalities in both white and gray matter structures. However, the relationship between microstructural white matter differences and volumetric subcortical structures is not known. We investigated 30 long-term treated patients with schizophrenia and schizoaffective disorder (mean age 51.1 ± 7.9 years, mean illness duration 27.6 ± 8.0 years) and 42 healthy controls (mean age 54.1 ± 9.1 years) using 3 T diffusion and structural magnetic resonance imaging. The free-water imaging method was used to model the diffusion signal, and subcortical volumes were obtained from FreeSurfer. We applied multiple linear regression to investigate associations between (i) patient status and regional white matter microstructure, (ii) medication dose or clinical symptoms on white matter microstructure in patients, and (iii) for interactions between subcortical volumes and diagnosis on microstructural white matter regions showing significant patient-control differences. The patients had significantly decreased free-water corrected fractional anisotropy (FA), explained by decreased axial diffusivity and increased radial diffusivity (RD) bilaterally in the anterior corona radiata (ACR) and the left anterior limb of the internal capsule (ALIC) compared to controls. In the fornix, the patients had significantly increased RD. In patients, positive symptoms were associated with localized increased free-water and negative symptoms with localized decreased FA and increased RD. There were significant interactions between patient status and several subcortical structures on white matter microstructure and the free-water compartment for left ACR and fornix, and limited to the free-water compartment for right ACR and left ALIC. The Cohen's d effect sizes were medium to large (0.61 to 1.20, absolute values). The results suggest a specific pattern of frontal white matter axonal degeneration and demyelination and fornix demyelination that is attenuated in the presence of larger structures of the limbic system in patients with chronic schizophrenia and schizoaffective disorder. Findings warrant replication in larger samples.