Background Recent research has identified impairment in processing speed, measured by the digit–symbol substitution task, as central to the cognitive deficit in schizophrenia. However, the underlying cognitive correlates of this impairment remain unknown. Methods A sample of cases (N=125) meeting DSM-IV criteria for schizophrenia and a sample of community controls (N=272) from the same geographical area completed a set of putative measures of processing-speed ability to which we implemented confirmatory factor and structural regression modelling in order to elucidate the latent structure of processing speed. Next, we tested the degree to which the structural and relational portions of the model were equal across groups. Results Processing-speed ability was best defined, in both controls and cases (χ 2 =38.5926, p =0.053), as a multidimensional cognitive ability consisting of three latent factors comprising: psychomotor speed, sequencing and shifting, and verbal fluency. However, cases exhibited dedifferentiation (i.e., markedly stronger inter-correlations between factors; χ 2 =59.9429, p <.01) and a reliance on an alternative ensemble of cognitive operations to controls when completing the digit–symbol substitution task. Conclusion Dedifferentiation of processing-speed ability in schizophrenia and subsequent overreliance on alternative (and possibly less than optimal) cognitive operations underlies the marked deficit observed on the digit–symbol substitution task.