Quantitative magnetic resonance imaging (MRI) studies in patients with schizophrenia have shown reliable deficits in global tissue volume as well as some regionally specific changes, particularly in the temporal and frontal lobes. Recent technical advances have enabled automated voxel-wise analyses, which have the advantage of facilitating whole brain coverage without the restrictions of anatomically defined regions of interest and imperfect rater reliability. We used such a method to estimate voxel composition from segmentation of bivariate, dual-echo spin-echo data in 72 men with schizophrenia. Of these, 41 had a prominent history of auditory– verbal hallucinations and 31 had no such history. The patients were compared with 32 age, gender, handedness and IQ matched healthy controls. The study revealed localized areas of reduced grey-matter tissue proportion aggregating around the medial temporal lobes, the insulae, orbito-frontal cortex including anterior cingulate, and the precuneus (and lingual) gyri, in the schizophrenia patients as a whole. There were also reductions in white-matter tissue proportion extending along much of the large anterior–posterior frontal tracts in the right hemisphere. Small regions of increased grey matter were also noted in the right inferior parietal lobe. A contrast between the hallucinator and non-hallucinator patient groups showed a single region of reduced grey-matter tissue proportion affecting the left insula and adjacent temporal lobe. These data confirm the utility of voxel-based morphometric methods in schizophrenia research and point towards disruption to a ‘paralimbic’ neural network, as underlying schizophrenic psychopathology in general, with abnormalities of the left insula specifically related to hallucinations.