Deficits in automatic sensory discrimination, as indexed by mismatch negativity (MMN) and P3a, are well documented in schizophrenia patients and could underlie deficits in more complex cognitive operations, as well as clinical symptoms and real-life functioning. Although there is ample evidence to suggest that MMN is impaired in chronic schizophrenia, its reduction has not been as robust in the early stages of the disease. Moreover, MMN has not been sufficiently researched in subjects at risk for schizophrenia. The primary aim of the present study was to investigate the early stages of auditory information processing in recent-onset schizophrenia and the putative prodrome by examining the amplitude and topography of MMN and P3a. The secondary aim was to explore the relationships of MMN and P3a deficits to the severity of clinical symptoms and social functioning impairment. We assessed 26 at-risk individuals, 28 recent-onset schizophrenia patients, and 31 age-matched healthy comparison subjects on a duration-deviant MMN paradigm as well as a battery of clinical and social functioning measures. Repeated measures analyses of variance revealed large effect size MMN amplitude reductions in recent-onset patients and modest effect size MMN reductions in at-risk individuals. Additionally, both patient groups had significant P3a amplitude reductions relative to the healthy comparison group. As expected, there were no significant group differences in MMN and P3a topographic distributions. MMN was found to be independent of clinical symptomatology, whereas reduced P3a correlated with more severe negative symptoms in the at-risk group. Contrary to predictions, smaller MMN and P3a activity was associated with better social and family functioning within the patient groups, unlike the inverse association in chronic schizophrenia patients. In summary, our findings point to deviance detection abnormalities in subjects identified as putatively prodromal for schizophrenia as well as those with manifest schizophrenia. Those persons may incorrectly process auditory input or underdetect changes in their acoustic environment, failing to notice stimuli that are usually salient to most people. MMN and P3a exhibit promise as trait markers for schizophrenia as they appear to be deficient before the onset of full-blown psychosis as well as during the first two years of the illness.