The purpose of this study was to examine social context processing in persons with schizophrenia. A secondary goal was to examine the ecological validity of these measures (i.e. how they relate to social behavior in the treatment setting). The performance of 35 persons with DSM-IV diagnosed schizophrenia and/or schizoaffective disorder was compared to a non-clinical control sample of 46 individuals on a battery of social perceptual tasks that require social context processing. In addition, the relationship between social context processing and ward behavior (as measured with the Nurse's Observation Scale for Inpatient Evaluation) was examined for the clinical sample only. The results showed that the group with schizophrenia/schizoaffective disorder was impaired on all tasks relative to the control group and showed little evidence of utilizing available contextual information. Task performance for the group with schizophrenia/schizoaffective disorder was relatively independent of symptoms, but was related to social functioning in the treatment setting. Implications for future research are discussed.