The Stroop color-word interference task, prompting slower response to color-incongruent than to congruent items, is often used to study neural mechanisms of inhibitory control and dysfunction in schizophrenia-spectrum disorders. Inconsistent findings of an augmented Stroop effect limit identification of relevant dysfunctional mechanism(s) in schizophrenia. The present study sought to advance understanding of normal and impaired neural oscillatory dynamics by distinguishing interference detection and response preparation during the Stroop task in schizophrenia-spectrum disorders via analysis of behavioral performance and 4–7 Hz (theta) and 10–30 Hz (alpha/beta) EEG oscillations in 40 patients (SZ) and 27 healthy comparison participants (HC). SZ responded more slowly and showed less dorsal anterior cingulate (dACC) theta enhancement during INC trials, less enhancement of dACC-sensorimotor cortex connectivity (theta phase synchrony) during INC trials, more alpha/beta suppression though less enhancement of that suppression during INC trials, and slower post-response alpha/beta rebound than did HC. Reaction time distributions showed larger group and Stroop effects during the 25% of trials with the slowest responses. Poorer theta phase coherence in patients indicates impaired communication between regions associated with interference processing (dACC) and response preparation (sensorimotor cortex). Results suggest a failure cascade in which compromised behavioral Stroop effects are driven at least in part by dysfunctional interference processing (less theta power increase) prompting dysfunctional motor response preparation (less alpha/beta power suppression). Inconsistent Stroop effects in past studies of schizophrenia may result from differing task parameters sampling different degrees of Stroop task difficulty.