Disturbances of thought and language are fundamental to schizophrenia. Cognitive behavioral and electrophysiological research has implicated problems in two different neurocognitive mechanisms: abnormalities in the structure and function of semantic memory, and abnormalities in combining and integrating words together to build up sentence and discourse context. This review discusses recent electrophysiological evidence suggesting that these two deficits are not completely distinct, but rather that language impairment in schizophrenia results from a dysfunctional interaction between these systems in an effort to build up higher-order meaning. Moreover, although language abnormalities are more pronounced in patients with positive thought disorder, they manifest themselves in all patients when increased demands are placed on the comprehension system. Further investigation of language dysfunction may also provide insights into other aspects of psychotic thought.