Background The study of cerebral underpinnings of schizophrenia may benefit from the high temporal resolution of electromagnetic techniques, but its spatial resolution is low. However, source imaging approaches such as low-resolution brain electromagnetic tomography (LORETA) allow for an acceptable compromise between spatial and temporal resolutions. Methods We combined LORETA with 32 channels and 3-Tesla diffusion magnetic resonance (Dmr) to study cerebral dysfunction in 38 schizophrenia patients (17 first episodes, FE), compared to 53 healthy controls. The EEG was acquired with subjects performing an odd-ball task. Analyses included an adaptive window of interest to take into account the interindividual variability of P300 latency. We compared source activation patters to distractor (P3a) and target (P3b) tones within- and between-groups. Results Patients showed a reduced activation in anterior cingulate and lateral and medial prefrontal cortices, as well as inferior/orbital frontal regions. This was also found in the FE patients alone. The activation was directly related to IQ in the patients and controls and to working memory performance in controls. Symptoms were unrelated to source activation. Fractional anisotropy in the tracts connecting lateral prefrontal and anterior cingulate regions predicted source activation in these regions in the patients. Conclusions These results replicate the source activation deficit found in a previous study with smaller sample size and a lower number of sensors and suggest an association between structural connectivity deficits and functional alterations.