Smooth pursuit abnormalities may reflect motion processing deficits in schizophrenia (SZ). There is little evidence, though, for a link between early neural activity supporting motion detection and motion processing ability in SZ. We used motion grating stimuli and dense array EEG data to investigate such a relationship. In the first study, thirteen DSM-IV SZ and 13 healthy subjects performed a simple motion direction discrimination task and only responded to target stimuli. SZ showed enhanced early VERP neural components (P1/N1), but impaired target detection (reduced N400 difference between target and non-target). In a second study, fourteen DSM-IV SZ and 14 healthy subjects performed a velocity discrimination task by indicating which of two gratings was faster (either a 10 deg/s standard or a test stimulus that was either faster or slower than the standard) in a two-alternative forced choice design. Speed discrimination of SZ was worse than healthy subjects, indicated by higher speed discrimination thresholds. To the initial grating presentation, there were no significant differences between groups in neural activity (N1/P2) to grating onset. In addition, for both groups, there were lower amplitude VERP responses to the 10 deg/s targets, indicating awareness of the most typical stimulus. These findings indicate normal neural responses to a single motion stimulus among SZ. During presentation of the second motion grating, however, SZ had intact N1 VERP responses but a significantly compromised P2 VERP across all stimulus velocities. Scalp topographies and distributed source analyses indicate this P2 is associated with processing beyond the initial evaluation of stimulus motion. Findings from both studies suggest smooth pursuit and motion analysis deficits in SZ are caused by dysfunction beyond the motion analysis stage.