Intact sarcasm perception is a crucial component of social cognition and mentalizing (the ability to understand the mental state of oneself and others). In sarcasm, tone of voice is used to negate the literal meaning of an utterance. In particular, changes in pitch are used to distinguish between sincere and sarcastic utterances. Schizophrenia patients show well-replicated deficits in auditory function and functional connectivity (FC) within and between auditory cortical regions. In this study we investigated the contributions of auditory deficits to sarcasm perception in schizophrenia.Auditory measures including pitch processing, auditory emotion recognition (AER) and sarcasm detection were obtained from 76 patients with schizophrenia/schizo-affective disorder and 72 controls. Resting-state FC (rsFC) was obtained from a subsample and was analyzed using seeds placed in both auditory cortex and meta-analysis-defined core-mentalizing regions relative to auditory performance.Patients showed large effect-size deficits across auditory measures. Sarcasm deficits correlated significantly with general functioning and impaired pitch processing both across groups and within the patient group alone. Patients also showed reduced sensitivity to alterations in mean pitch and variability. For patients, sarcasm discrimination correlated exclusively with the level of rsFC within primary auditory regions whereas for controls, correlations were observed exclusively within core-mentalizing regions (the right posterior superior temporal gyrus, anterior superior temporal sulcus and insula, and left posterior medial temporal gyrus).These findings confirm the contribution of auditory deficits to theory of mind (ToM) impairments in schizophrenia, and demonstrate that FC within auditory, but not core-mentalizing, regions is rate limiting with respect to sarcasm detection in schizophrenia.