Although it has been proposed that schizophrenia is characterized by impaired empathy, several recent studies found intact neural responses on tasks measuring the affective subdomain of empathy. This study further examined affective empathy in 21 schizophrenia outpatients and 21 healthy controls using a validated pain empathy paradigm with two components: (i) observing videos of people described as medical patients who were receiving a painful sound stimulation treatment; (ii) listening to the painful sounds (to create regions of interest). The observing videos component incorporated experimental manipulations of perspective taking (instructions to imagine ‘Self’ vs ‘Other’ experiencing pain) and cognitive appraisal (information about whether treatment was ‘Effective’ vs ‘Not Effective’). When considering activation across experimental conditions, both groups showed similar dorsal anterior cingulate cortex (dACC) and anterior insula (AI) activation while merely observing others in pain. However, there were group differences associated with perspective taking: controls showed relatively greater dACC and AI activation for the Self vs Other contrast whereas patients showed relatively greater activation in these and additional regions for the Other vs Self contrast. Although patients demonstrated grossly intact neural activity while observing others in pain, they showed more subtle abnormalities when required to toggle between imagining themselves vs others experiencing pain.