Background: Previously we proposed that dorsolateral prefrontal cortex (PFC) supports a specific working memory (WM) subcomponent: the ability to represent and maintain context information necessary to guide appropriate task behavior. By context, we mean prior task-relevant information represented in such a form that it supports selection of the appropriate behavioral response. Furthermore, we hypothesized that WM deficits in schizophrenia reflect impaired context processing due to a disturbance in dorsolateral PFC. We use functional magnetic resonance imaging to examine PFC activation in medication-naive, first-episode patients with schizophrenia during a WM, task-isolating context processing. Methods: Fourteen first-episode, medication-naive patients with schizophrenia and 12 controls similar in age, sex, and parental education underwent functional magnetic resonance imaging during performance of an A-X version of the Continuous Performance Test. Results: Patients with schizophrenia demonstrated deficits in dorsolateral PFC activation in task conditions requiring context processing but showed intact activation of posterior and inferior PFC. In addition, patients demonstrated intact activation of the primary motor and somatosensory cortex in response to stimulus processing demands. Conclusions: These results demonstrate selectivity in dorsolateral PFC dysfunction among medication-naive first-episode patients with schizophrenia, suggesting that a specific deficit in PFC function is present at illness onset, prior to the administration of medication or the most confounding effects of illness duration. Furthermore, these results are consistent with the hypothesis that WM deficits in patients with schizophrenia reflect an impairment in context processing due to a disturbance in dorsolateral PFC function.