Successful linguistic processing requires efficient encoding of successively-occurring auditory input in a time-constrained manner, especially under noisy conditions. In this study we examined the early neural response dynamics to rapidly-presented successive syllables in schizophrenia participants and healthy comparison subjects, and investigated the effects of noise on these responses. We used magnetoencephalography (MEG) to reveal the time-course of stimulus-locked activity over bilateral auditory cortices during discrimination of syllable pairs that differed either in voice onset time (VOT) or place of articulation (POA), in the presence or absence of noise. We also examined the association of these early neural response patterns to higher-order cognitive functions. The M100 response, arising from auditory cortex and its immediate environs, showed less attenuation to the second syllable in patients with schizophrenia than healthy comparison subjects during VOT-based discrimination in noise. M100 response amplitudes were similar between groups for the first syllable during all three discrimination conditions, and for the second syllable during VOT-based discrimination in quiet and POA-based discrimination in noise. Across subjects, the lack of M100 attenuation to the second syllable during VOT-based discrimination in noise was associated with poorer task accuracy, lower education and IQ, and lower scores on measures of Verbal Learning and Memory and Global Cognition. Because the neural response to the first syllable was not significantly different between groups, nor was a schizophrenia-related difference obtained in all discrimination tasks, early linguistic processing dysfunction in schizophrenia does not appear to be due to general sensory input problems. Rather, data suggest that faulty temporal integration occurs during successive syllable processing when the signal-to-noise ratio is low. Further, the neural mechanism by which the second syllable is suppressed during noise-challenged VOT discrimination appears to be important for higher-order cognition and provides a promising target for neuroscience-guided cognitive training approaches to schizophrenia.