Reality evaluation (i.e., the discrimination of things existing outside of oneself and figments of others' imagination) may be impaired in patients with schizophrenia, and impairment in reality evaluation may be related to psychotic symptoms such as hallucinations and delusions. In this study, we investigated the nature of impairment of reality processing and its relationship with hallucinations and delusions in schizophrenia. Twenty-six patients with schizophrenia and 25 healthy controls completed the reality evaluation task, in which subjects judged whether scenes in a series of drawings were real or unreal and whether they were familiar or novel. The patient group exhibited significantly lower accuracy in reality evaluation than the control group, and lower accuracy in the patient group was related to more severe hallucinations and delusions. These findings provide preliminary evidence that impaired reality evaluation is related to the formation or maintenance of hallucinations and delusions in schizophrenia.