Objectives: Hippocampal dysfunction has been proposed as a mechanism for memory deficits in schizophrenia. Available evidence suggests that the anterior and posterior hippocampus could be differentially affected. Accordingly, we used fMRI to test the hypothesis that activity in posterior hippocampus is disproportionately reduced in schizophrenia, particularly during spatial memory retrieval. Methods: 26 healthy participants and 24 patients with schizophrenia from the UC Davis Early Psychosis Program were studied while fMRI was acquired on a 3 Tesla Siemens scanner. During encoding, participants were oriented to critical items through questions about item features (e.g., “Does the lamp have a square shade?”) or spatial location (e.g., “Is the lamp on the table next to the couch?”). At test, participants determined whether scenes were changed or unchanged. fMRI analyses contrasted activation in a priori regions of interest (ROI) in anterior and posterior hippocampus during correct recognition of item changes and spatial changes. Results: As predicted, patients with schizophrenia exhibited reduced activation in the posterior hippocampus during detection of spatial changes but not during detection of item changes. Unexpectedly, patients exhibited increased activation of anterior hippocampus during detection of item changes. Whole brain analyses revealed reduced fronto-parietal and striatal activation in patients for spatial but not for item change trials. Conclusions: Results suggest a gradient of hippocampal dysfunction in which posterior hippocampus – which is necessary for processing fine-grained spatial relationships – is underactive, and anterior hippocampus – which may process context more globally - is overactive.