Thought disorder is a core symptom of schizophrenia. However, the underlying mechanism is not well understood. Functional MRI (fMRI) was used to examine the neural mechanism of thought disorder in 20 patients with schizophrenia and 20 healthy controls during semantic judgments. Two indexes of disorganized thought were further used to evaluate individual differences in thought disturbance in the patients. Compared with the controls, the patients showed greater activation in left inferior frontal gyrus (BA45) and reduced activation in the left caudate nucleus for meaning-related pairs. Moreover, in patients, effective connectivity from Dynamic Causal Modeling showed that the modulatory effect from the caudate nucleus to the inferior frontal gyrus was weaker than that in controls, indicating a disrupted cortical-subcortical language loop for semantic processing in patients. Finally, increasing scores of disorganized thought were correlated with greater activation in the inferior frontal gyrus and weaker connection strength from the caudate nucleus to the inferior frontal gyrus. Patients with more severe disorganized symptoms might receive less efficient regulation from the caudate nucleus, resulting in increased demands for the inferior frontal gyrus to retrieve or select semantic knowledge in the cortical-subcortical circuit.