Background Individuals with schizophrenia are impaired in their ability to recognize emotions based on vocal cues and these impairments are associated with poor global outcome. Basic perceptual processes, such as auditory pitch processing, are impaired in schizophrenia and contribute to difficulty identifying emotions. However, previous work has focused on a relatively narrow assessment of auditory deficits and their relation to emotion recognition impairment in schizophrenia. Methods We have assessed 87 patients with schizophrenia and 73 healthy controls on a comprehensive battery of tasks spanning the five empirically derived domains of auditory function. We also explored the relationship between basic auditory processing and auditory emotion recognition within the patient group using correlational analysis. Results Patients exhibited widespread auditory impairments across multiple domains of auditory function, with mostly medium effect sizes. Performance on all of the basic auditory tests correlated with auditory emotion recognition at the p < .01 level in the patient group, with 9 out of 13 tests correlating with emotion recognition at r = 0.40 or greater. After controlling for cognition, many of the largest correlations involved spectral processing within the phase-locking range and discrimination of vocally based stimuli. Conclusions While many auditory skills contribute to this impairment, deficient formant discrimination appears to be a key skill contributing to impaired emotion recognition as this was the only basic auditory skill to enter a step-wise multiple regression after first entering a measure of cognitive impairment, and formant discrimination accounted for significant unique variance in emotion recognition performance after accounting for deficits in pitch processing.