Despite a well-known behavioral finding of visual backward masking impairment in schizophrenia, its underlying neural mechanism remains obscure. This study examined neural correlates of a distinct type of visual backward masking, object substitution masking (OSM), in schizophrenia. Twenty schizophrenia patients and 26 healthy controls completed a 4-Dot OSM task and three functional localizer tasks for the lateral occipital (LO), human motion-sensitive (hMT+), and retinotopic areas in the scanner. In 4-dot masking, subjects detected a target that was followed by a mask consisting of 4 dots that surrounded a target. Stimulus-onset asynchrony (SOA) between target and mask was varied to examine the modulation of masking: (1) within three visual processing areas regions of interest (ROI) (i.e., ROI analysis) and (2) in brain regions outside the three visual processing areas (i.e., whole brain analysis). In the ROI analyses, LO and retinotopic areas showed increased peak amplitude when SOA become longer in both patients and controls. There was also an effect of ROI in that both groups showed higher activation in LO and hMT+ compared with the retinotopic areas. The whole brain analyses revealed a significantly activated area for longer SOAs vs. a short SOA in the occipital cortex in controls only, but the group contrast was not significant. Overall, this study did not find strong evidence for neural abnormalities of OSM in schizophrenia, suggesting that neural substrates of OSM in schizophrenia are not as compromised as those involved in the more common masking methods that rely on disruption of object formation. © 2014 Wiley Periodicals, Inc.