Compared to other cognitive functions in schizophrenia, evidence suggests that verbal memory is particularly impaired. This study used the California Verbal Learning Test (CVLT) to examine proactive inhibition (PI) and semantic processing in verbal memory in 29 patients with schizophrenia and 29 healthy controls. Patients showed significantly less PI, but also did not organize (cluster) their recall according to semantic category. Controls and patients demonstrated small retroactive inhibition (RI) effects regardless of semantic content. Although both groups made similar types and numbers of free recall intrusion errors, patients committed more phonemic and nonshared recognition errors. Results suggest that reduced semantic processing prevented build of PI, and contributes to defective memory in schizophrenia. The anatomic-physiologic abnormalities that underlie these findings may be particularly pronounced in prefrontal and temporal-parietal cortical areas. (JINS, 1996, 2, 486–493.)