Evidence is accumulating that patients with schizophrenia exhibit relatively severe deficits in early visual sensory processing within the dorsal stream, while processing within the ventral stream appears to be relatively more intact. Here, illusory contour (IC) processing was investigated in a cohort of schizophrenia patients and age-matched healthy controls using high-density visual evoked potentials (VEPs), spatiotemporal topographic analyses and the Local Auto-Regressive Average distributed linear inverse source estimation. IC processing was assessed because it is now known to be an excellent metric of early processing within regions of the ventral visual stream. Results in the present study show that IC processing (106-194 ms) is spared in patients with schizophrenia, providing strong evidence that early ventral stream processing is essentially normal. This is so despite equally strong evidence that early dorsal stream processing is severely impaired in this population, as indexed by a robust decrement in amplitude of the P1 component in patients and a large topographic difference between groups for this component (54-104 ms). Source analysis confirmed that the flow of activity into the dorsal stream was substantially decreased in patients. As such, these results suggest that some aspects of early ventral processing are not entirely reliant on intact inputs from the dorsal stream. Lastly, we show that later phases of visual processing (240-400 ms) also rely on the activity of different brain networks in controls and patients, with the latter recruiting strong frontal activity perhaps as compensation for impaired ventral stream processing during this period. We interpret the present findings in the context of a two-stage processing model. Under this model, it is suggested that the second stage of ventral stream processing is dependent on the fidelity of inputs from the dorsal visual stream and that impairment of this critical modulatory input may underlie the failure of 'higher-level' ventral stream processes in this population.