Hypofrontality and decreased lateralization have been two major, albeit controversial, results from functional neuroimaging studies of schizophrenia. We used fMRI to study cortical activation during a verbal and spatial working memory (WM) task (2-back) in 15 inpatients acutely ill with schizophrenia and 15 matched control subjects. We hypothesized (i) hypofrontality in patients in both tasks and (ii) decreased lateralization of prefrontal activation in patients under the assumption that, in controls, left prefrontal cortex (PFC) is engaged preferentially in the verbal task (verbal domain dominance) and the right prefrontal cortex is engaged preferentially in the spatial task (spatial domain dominance). Our results showed no significant differences in frontal activation between controls and patients, i.e. no hypofrontality in patients, even at a very liberal threshold (p<0.01). This may be explained by the fact that nearly all patients studied received atypical neuroleptics. Nonetheless, we found evidence for more subtle, domain-related prefrontal dysfunction. Whereas controls showed verbal WM domain dominance in left inferior frontal cortex and spatial WM domain dominance in right prefrontal cortex, these domain dominance effects were absent in the patient group, i.e. there were no lateralization effects. Finally, only patients showed an inverse correlation between performance and right prefrontal activation in verbal WM. We conclude that the finding of hypofrontality may depend on the medication of the patients and that there is prefrontal dysfunction even in the absence of hypofrontality.