BACKGROUND: Agency is the awareness of being the originator of one's own thoughts and actions. Patients with schizophrenia (SZ) show deficits in agency that contribute to distortions in reality-monitoring (distinguishing self-generated from externally-produced information) and result in psychotic symptoms. Agency is also critical for speech-monitoring (monitoring what we hear ourselves say while speaking). For example, disruptions in agency that manifest as hallucinations are thought to result from the misattribution of the source of patients' inner thoughts/speech as external voices. METHODS: We used magnetoencephalography (MEG) to assay assess agency during reality-monitoring (RM) and speech-monitoring (SM) tasks. In healthy controls (HC) during SM, the auditory cortical (A1) response is smaller while speaking (speak condition) compared to listening to the same speech (listen condition). This is known as speaking-induced suppression (SIS) M100 response which is measured using MEG 100ms after speech onset. RESULTS: During RM, SZ (N=30) showed impairments in both self-agency (identification of self-generated information) and external-agency (identification of externally-produced information), compared to HC (N=30). During SM, SZ failed to enhance M100 A1 responses during the listen condition and suppress M100 A1 responses while speaking, revealing impaired SIS. Weakened SIS predicted worsening hallucination severity. CONCLUSIONS: SZ showed degraded neural M100 responses in A1 during the listen condition which drove impaired suppression of M100 SIS during highly-predictable self-generated speech. Impaired SIS induced noisier auditory sensory predictions, making it more likely for SZ to misattribute the source of inner thoughts/speech as externally-derived, giving rise to disruptions in agency during RM and more severe hallucinations.