Schizophrenia (SCZ) is a complex mental disorder that may result in some combination of hallucinations, delusions and disorganized thinking. Here SCZ patients and healthy controls (CTLs) report their level of confidence on a forced-choice task that manipulated the strength of sensory evidence and prior information. Neither group's responses can be explained by simple Bayesian inference. Rather, individual responses are best captured by a model with different degrees of circular inference. Circular inference refers to a corruption of sensory data by prior information and vice versa, leading us to 'see what we expect' (through descending loops), to 'expect what we see' (through ascending loops) or both. Ascending loops are stronger for SCZ than CTLs and correlate with the severity of positive symptoms. Descending loops correlate with the severity of negative symptoms. Both loops correlate with disorganized symptoms. The findings suggest that circular inference might mediate the clinical manifestations of SCZ.