Background: Abnormalities in γ oscillations (30–100 Hz) in the scalp-recorded electroencephalogram (EEG) have been proposed to reflect neural circuitry abnormalities in schizophrenia. Oscillations in the γ band are thought to play an important role in visual perception, mediating the binding of visual features into coherent objects. However, there is relatively little evidence to date of deficits in γ-mediated processes associated with Gestalt perception in schizophrenia. Methods: Fourteen healthy control subjects (HC) and 17 chronic schizophrenia patients (SZ) discriminated between illusory Kanisza Squares and No-Square control stimuli, indicating their judgment with a manual button press. Time-frequency decomposition of the EEG was computed with the Morlet wavelet transform. Time-frequency maps of phase locking factor (PLF) values were calculated for stimulus- and response-locked oscillations. Results: HC and SZ did not differ in reaction time, error rate, an early ERP effect associated with Gestalt processing, nor an early visual-evoked γ oscillation. Two response-locked high γ effects had greater PLF for Square than No-Square stimuli in HC, and the reverse pattern in SZ. One of these effects was correlated with thought disorder symptom ratings in SZ. Conclusions: SZ demonstrated abnormalities in γ oscillations associated with the perception of Gestalt objects, while their early visual-evoked γ activity was mostly normal, contrary to previous results. This study supports the hypothesis that high-frequency oscillations are sensitive to aspects of psychosis