Individuals with schizophrenia exhibit problems with understanding the figurative meaning of language. This study evaluates neural correlates of diminished humor comprehension observed in schizophrenia. The study included chronic schizophrenia (SCH) outpatients (n = 20), and sex, age and education level matched healthy controls (n = 20). The fMRI punchline based humor comprehension task consisted of 60 stories of which 20 had funny, 20 nonsensical and 20 neutral (not funny) punchlines. After the punchlines were presented, the participants were asked to indicate whether the story was comprehensible and how funny it was. Three contrasts were analyzed in both groups reflecting stages of humor processing: abstract vs neutral stories - incongruity detection; funny vs abstract - incongruity resolution and elaboration; and funny vs neutral - complete humor processing. Additionally, parametric modulation analysis was performed using both subjective ratings separately. Between-group comparisons revealed that the SCH subjects had attenuated activation in the right posterior superior temporal gyrus (BA 41) in case of irresolvable incongruity processing of nonsensical puns; in the left dorsomedial middle and superior frontal gyri (BA 8/9) in case of incongruity resolution and elaboration processing of funny puns; and in the interhemispheric dorsal anterior cingulate cortex (BA 24) in case of complete processing of funny puns. Additionally, during comprehensibility ratings the SCH group showed a suppressed activity in the left dorsomedial middle and superior frontal gyri (BA 8/9) and revealed weaker activation during funniness ratings in the left dorsal anterior cingulate cortex (BA 24). Interestingly, these differences in the SCH group were accompanied behaviorally by a protraction of time in both types of rating responses and by indicating funny punchlines less comprehensible. Summarizing, our results indicate neural substrates of humor comprehension processing impairments in schizophrenia, which is accompanied by fronto-temporal hypoactivation.