The ability to imitate is considered impaired in schizophrenia patients. This assumption, however, is based on heterogeneous studies mostly targeting voluntary imitation, e.g., pantomime. Studies on automatic imitation, however, and on underlying mechanisms of top-down inhibition of automatic imitation and contextual modulation in schizophrenia are highly limited. We employed two sensorimotor paradigms to examine imitation-inhibition and action context mapping in 37 schizophrenia patients and 36 matched controls. In the first experiment, participants performed finger lifts while observing a hand executing compatible or incompatible finger lifts from the third-person perspective. The compatibility or incompatibility of these finger lifts affected participants' reaction times (RTs). The comparison of between-condition RT differences shows a larger movement compatibility effect in schizophrenia than in controls. The second experiment involved finger lifts while watching a still hand, from the first-person perspective, with constrained fingers that either corresponded or did not correspond to the participants' response fingers. Here, schizophrenia patients showed a diminished RT slowing in corresponding constraint trials. While the former results provide evidence for an impaired control of imitation in patients with schizophrenia, the latter results indicate a reduced encoding of action context. In conclusion, this study provides the first evidence for deficits of top-down control of imitation and motor context processing in the same sample of schizophrenia patients.