Individuals with schizophrenia exhibit abnormalities in evoked brain responses in oddball paradigms. These could result from (a) insufficient salience‐related cortical signaling (P300), (b) insufficient suppression of irrelevant aspects of the auditory environment, or (c) excessive neural noise. We tested whether disruption of ongoing auditory steady‐state responses at predetermined frequencies informed which of these issues contribute to auditory stimulus relevance processing abnormalities in schizophrenia. Magnetoencephalography data were collected for 15 schizophrenia and 15 healthy subjects during an auditory oddball paradigm (25% targets; 1‐s interstimulus interval). Auditory stimuli (pure tones: 1 kHz standards, 2 kHz targets) were administered during four continuous background (auditory steady‐state) stimulation conditions: (1) no stimulation, (2) 24 Hz, (3) 40 Hz, and (4) 88 Hz. The modulation of the auditory steady‐state response (aSSR) and the evoked responses to the transient stimuli were quantified and compared across groups. In comparison to healthy participants, the schizophrenia group showed greater disruption of the ongoing aSSR by targets regardless of steady‐state frequency, and reduced amplitude of both M100 and M300 event‐related field components. During the no‐stimulation condition, schizophrenia patients showed accentuation of left hemisphere 40 Hz response to both standard and target stimuli, indicating an effort to enhance local stimulus processing. Together, these findings suggest abnormalities in auditory stimulus relevance processing in schizophrenia patients stem from insufficient amplification of salient stimuli.