Impaired illness awareness or anosognosia is a common, but poorly understood feature of schizophrenia that contributes to medication nonadherence and poor treatment outcomes. Here we present a functional imaging study to measure brain activity at the moment of illness denial. To accomplish this, participants with schizophrenia (n = 18) with varying degrees of illness awareness were confronted with their illness beliefs while undergoing functional MRI. To link structure with function, we explored the relationships among impaired illness awareness and brain activity during the illness denial task with cortical thickness. Impaired illness awareness was associated with increased brain activity in the left temporoparieto-occipital junction (TPO) and left medial prefrontal cortex (mPFC) at the moment of illness denial. Brain activity in the left mPFC appeared to be a function of participants' degree of self-reflectiveness, while the activity in the left TPO was associated with cortical thinning in this region and more specific to illness denial. Participants with impaired illness awareness had slower response times to illness related stimuli than those with good illness awareness. Increased left hemisphere brain activity in association with illness denial is consistent with the literature in other neuropsychiatric conditions attributing anosognosia or impaired illness awareness to left hemisphere dominance. The TPO and mPFC may represent putative targets for noninvasive treatment interventions, such as transcranial magnetic or direct current stimulation. Hum Brain Mapp, 36:391–414, 2015. © 2014 Wiley Periodicals, Inc.