There is no pharmacological treatment to remediate cognitive impairment in schizophrenia (SZ). It is imperative to characterize underlying pathologies of memory processing in order to effectively develop new treatments. In this longitudinal study, we combined functional magnetic resonance imaging during a memory encoding task with proton MR spectroscopy to measure hippocampal glutamate + glutamine (Glx). Seventeen SZ were scanned while unmedicated and after 6 weeks of treatment with risperidone and compared to a group of matched healthy controls (HC) scanned 6 weeks apart. Unmedicated patients showed reduced blood oxygen level dependent (BOLD) response in several regions, including the hippocampus, and greater BOLD response in regions of the default mode network (DMN) during correct memory encoding. Post hoc contrasts from significant group by time interactions indicated reduced hippocampal BOLD response at baseline with subsequent increase following treatment. Hippocampal Glx was not different between groups at baseline, but at week 6, hippocampal Glx was significantly lower in SZ compared to HC. Finally, in unmedicated SZ, higher hippocampal Glx predicted less deactivation of the BOLD response in regions of the DMN. Using 2 brain imaging modalities allowed us to concurrently investigate different mechanisms involved in memory encoding dysfunction in SZ. Hippocampal pathology during memory encoding stems from decreased hippocampal recruitment and faulty deactivation of the DMN, and hippocampal recruitment during encoding can be modulated by antipsychotic treatment. High Glx in unmedicated patients predicted less deactivation of the DMN; these results suggest a mechanism by which faulty DMN deactivation, a hallmark of pathological findings in SZ, is achieved.