BACKGROUND: Strong evidence exists for an association between genetic variation in the gene DAOA (D-amino acid oxidase activator, also known as G72) and risk for schizophrenia. Preliminary evidence in healthy control subjects has implicated genetic variation in the DAOA gene in the modulation of hippocampal complex and prefrontal cortex activation. METHODS: Assessment was performed on 61 subjects at high genetic risk of schizophrenia for familial reasons. All subjects were genotyped for two closely linked single nucleotide polymorphisms in the DAOA gene complex, M23 (rs3918342) and M24 (rs1421292), that have previously shown association with schizophrenia. The effect of genotype on brain activation was assessed with functional magnetic resonance imaging data gathered during performance of the verbal initiation section of the Hayling Sentence Completion Task. RESULTS: Differences between DAOA genotype groups were seen in the activation of the left hippocampus and parahippocampus in the contrast of sentence completion versus rest. In addition the DAOA genotype groups differed in their recruitment of right inferior prefrontal cortex in relation to increasing task difficulty. The effects of genotype on brain activation could not be explained in terms of differences in grey matter density. CONCLUSIONS: These results support the view that genetic variation in the DAOA gene influences hippocampal complex and prefrontal cortex function, an effect that might be particularly prominent in the context of enhanced genetic risk for schizophrenia.