Background Sleep spindles are thought to induce synaptic changes and thereby contribute to memory consolidation during sleep. Patients with schizophrenia show dramatic reductions of both spindles and sleep-dependent memory consolidation, which may be causally related. Methods To examine the relations of sleep spindle activity to sleep-dependent consolidation of motor procedural memory, 21 chronic, medicated schizophrenia outpatients and 17 healthy volunteers underwent polysomnography on two consecutive nights. On the second night, participants were trained on the finger-tapping motor sequence task (MST) at bedtime and tested the following morning. The number, density, frequency, duration, amplitude, spectral content, and coherence of stage 2 sleep spindles were compared between groups and examined in relation to overnight changes in MST performance. Results Patients failed to show overnight improvement on the MST and differed significantly from control participants who did improve. Patients also exhibited marked reductions in the density (reduced 38% relative to control participants), number (reduced 36%), and coherence (reduced 19%) of sleep spindles but showed no abnormalities in the morphology of individual spindles or of sleep architecture. In patients, reduced spindle number and density predicted less overnight improvement on the MST. In addition, reduced amplitude and sigma power of individual spindles correlated with greater severity of positive symptoms. Conclusions The observed sleep spindle abnormalities implicate thalamocortical network dysfunction in schizophrenia. In addition, the findings suggest that abnormal spindle generation impairs sleep-dependent memory consolidation in schizophrenia, contributes to positive symptoms, and is a promising novel target for the treatment of cognitive deficits in schizophrenia.