Empathic deficits have been linked to poor functioning in schizophrenia, but this work is mostly limited to self-report data. This study examined whether performance-based empathy measures account for incremental variance in social competence and social attainment above and beyond self-reported empathy, neurocognition, and clinical symptoms. Given the importance of working memory in theoretical models of empathy and in the prediction of functioning in schizophrenia, we also examined whether empathy mediates the relationship between working memory and functioning. Sixty outpatients and 45 healthy controls were compared on performance-based measures of 3 key components of empathic responding, including facial affect perception, emotional empathy (affective responsiveness), and cognitive empathy (emotional perspective-taking). Participants also completed measures of self-reported empathy, neurocognition, clinical symptoms, and social competence and attainment. Patients demonstrated lower accuracy than controls across the 3 performance-based empathy measures. Among patients, these measures showed minimal relations to self-reported empathy but significantly correlated with working memory and other neurocognitive functions as well as symptom levels. Furthermore, cognitive empathy explained significant incremental variance in social competence ([INCREMENT]R2 = .07, P < .05) and was found to mediate the relation between working memory and social competence. Performance-based measures of empathy were sensitive to functionally relevant disturbances in schizophrenia. Working memory deficits appear to have an important effect on these disruptions in empathy. Empathy is emerging as a promising new area for social cognitive research and for novel recovery-oriented treatment development.