We examined hippocampal activation in schizophrenia (SZ) with fMRI BOLD in response to the presentation of novel and familiar scenes. Voxel-wise analysis showed no group differences. However, anatomical region-of-interest analyses contrasting normal (NL), SZ-on-medication (SZ-ON), SZ-off-medication (SZ-OFF) showed substantial differences in MTL-based novelty responding, accounted for by the reduction in novelty responses in the SZ-OFF predominantly in the anterior hippocampus and parahippocampal cortex. These differences in novelty-based activation in the SZ-OFF group represent disease characteristics of schizophrenia without confounding effects of antipsychotic medication and illustrate the tendency of antipsychotic drug treatment to improve memory functions in schizophrenia.