Previous research has suggested that complexity of speech, speech rate, use of emotion words, and use of pronouns are all potential indicators of important clinical components of schizophrenia, but little research has examined the relationships of these disturbances to cognitive variables impaired in schizophrenia, including social cognition. The current study examined these lexical differences to better characterize the cognitive substrates of speech disturbances in schizophrenia. Brief narratives of individuals with schizophrenia (n = 42) and non-clinical controls (n = 48) were compared according to their lexical characteristics, and these were examined for relationships to social cognition and real-world functioning. Significant differences between the groups were found in words per sentence (related to functioning, but not negative symptoms) as well as pronoun use (related to attributional style and theory of mind). Additionally, lexical characteristics effectively distinguished individuals with schizophrenia from non-clinical controls. Language disturbances in schizophrenia seem related to social cognition impairments and real-world functioning, and are a robust indicator of clinical status.