Diffusion tensor imaging (DTI) studies of schizophrenia have revealed white matter abnormalities in several areas of the brain. The functional impact on either psychopathology or cognition remains, however, poorly understood. Here we analysed both functional MRI (during a working memory task) and DTI data sets in 18 patients with schizophrenia and 18 controls. Firstly, DTI analyses revealed reductions of fractional anisotropy (FA) in the right medial temporal lobe adjacent to the right parahippocampal gyrus, likely to contain fibres of the inferior cingulum bundle, and in the right frontal lobe. Secondly, functional MRI revealed prefrontal, superior parietal and occipital relative hypoactivation in patients with the main effect of task. This was accounted for by reduced prefrontal activation during the encoding phase of the task, but not during maintenance or retrieval phases. Thirdly, we found a direct correlation in patients between the frontal FA reduction (but not medial temporal reductions) and fMRI activation in regions in the prefrontal and occipital cortex. Our study combining fMRI and DTI thus demonstrates altered structure-function relationships in schizophrenia. It highlights a potential relationship between anatomical changes in a frontal-temporal anatomical circuit and functional alterations in the prefrontal cortex.