Temporal lobe abnormalities and emotion recognition deficits are prominent features of schizophrenia and appear related to the diathesis of the disorder. This study investigated whether temporal lobe structural abnormalities were associated with facial emotion recognition deficits in schizophrenia and related to genetic liability for the disorder. Twenty-seven schizophrenia patients, 23 biological family members, and 36 controls participated. Several temporal lobe regions (fusiform, superior temporal, middle temporal, amygdala, and hippocampus) previously associated with face recognition in normative samples and found to be abnormal in schizophrenia were evaluated using volumetric analyses. Participants completed a facial emotion recognition task and an age recognition control task under time-limited and self-paced conditions. Temporal lobe volumes were tested for associations with task performance. Group status explained 23% of the variance in temporal lobe volume. Left fusiform gray matter volume was decreased by 11% in patients and 7% in relatives compared with controls. Schizophrenia patients additionally exhibited smaller hippocampal and middle temporal volumes. Patients were unable to improve facial emotion recognition performance with unlimited time to make a judgment but were able to improve age recognition performance. Patients additionally showed a relationship between reduced temporal lobe gray matter and poor facial emotion recognition. For the middle temporal lobe region, the relationship between greater volume and better task performance was specific to facial emotion recognition and not age recognition. Because schizophrenia patients exhibited a specific deficit in emotion recognition not attributable to a generalized impairment in face perception, impaired emotion recognition may serve as a target for interventions.