Social exclusion is an influential concept in politics, mental health and social psychology. Studies on healthy subjects have implicated the medial prefrontal cortex (mPFC), a region involved in emotional and social information processing, in neural responses to social exclusion. Impairments in social interactions are common in schizophrenia and are associated with reduced quality of life. Core symptoms such as delusions usually have a social content. However little is known about the neural underpinnings of social abnormalities. The aim of this study was to investigate the neural substrates of social exclusion in schizophrenia. Patients with schizophrenia and healthy controls underwent fMRI while participating in a popular social exclusion paradigm. This task involves passing a ‘ball’ between the participant and two cartoon representations of other subjects. The extent of social exclusion (ball not being passed to the participant) was parametrically varied throughout the task. Replicating previous findings, increasing social exclusion activated the mPFC in controls. In contrast, patients with schizophrenia failed to modulate mPFC responses with increasing exclusion. Furthermore, the blunted response to exclusion correlated with increased severity of positive symptoms. These data support the hypothesis that the neural response to social exclusion differs in schizophrenia, highlighting the mPFC as a potential substrate of impaired social interactions.