A schema-based theory of music perception that describes the dynamic interaction between the musical event and the listener’s knowledge of the underlying regularities in tonal music is proposed. Three properties of musical schema are evaluated in a recognition memory experiment: (1) The schema engages a subset of the abstract knowledge system that is determined by the predominant key of the musical sequence, (2) the schema evaluates both interval relations and the functions of the sounded elements within the established tonal framework, and (3) the schema interacts continuously with the musical event in time to process pitch information in its temporal context. Listeners are required to identify the serial position of a chord that is changed between two successive chord sequences that are otherwise identical. The experiment measures the magnitude and the temporal extent of the disruptive effect of including in the sequence an element outside the tonal framework. The results show temporally specific effects on memory for pitch relations consistent with the operation of a musical schema. Comparisons are made with schema-based theories applied in other perceptual and cognitive domains.