Decreased language lateralization is a well-replicated finding in psychotic patients. It is currently unclear, however, whether this abnormality is related to a particular symptom of psychosis or to psychosis in general. It has been argued that decreased language lateralization may be related to auditory verbal hallucinations. To elucidate this, these hallucinations should be studied in isolation. Thirty-five patients with a psychotic disorder, 35 non-psychotic subjects with relatively isolated auditory verbal hallucinations and 35 healthy control subjects participated in this study. All subjects were scanned on a 3T magnetic resonance imaging scanner, while covertly performing a paced verbal fluency task. In order to measure performance on the task, one additional task block was presented during which subjects had to generate words overtly. In addition to calculating language lateralization indices, group-wise brain activation during verbal fluency was compared between the three groups. Task performance was nearly maximal for all groups and did not differ significantly between the groups. Compared with the healthy control subjects and non-psychotic subjects with auditory verbal hallucinations, language lateralization was significantly reduced for the patient group. In addition, the patients displayed significantly greater activity in the right precentral gyrus and left insula when compared with the healthy control subjects and the non-psychotic subjects with auditory verbal hallucinations. Furthermore, the patients showed greater activity in the right superior parietal lobule when compared with the healthy control subjects. Lateralization indices did not differ significantly between the non-psychotic subjects with auditory verbal hallucinations and the healthy control subjects. Moreover, there were no significant differences in brain activation during verbal fluency between the two non-psychotic groups. As language lateralization was not significantly reduced in the non-psychotic individuals with auditory verbal hallucinations, a direct relationship between auditory verbal hallucinations and decreased language lateralization can not be established at present.