Deficits in social cognition are common in schizophrenia and predict poor community functioning. Given the current limitations of psychosocial treatments and the lack of pharmacological treatments for social cognitive deficits, the development of novel therapeutic agents could greatly enhance functional recovery in schizophrenia. This study evaluated whether a single dose of intranasal oxytocin acutely improves social cognitive functioning in schizophrenia. Twenty-three male veterans with schizophrenia completed baseline assessments of social cognition that were divided into lower-level (facial affect perception, social perception, detection of lies) and higher-level (detection of sarcasm and deception, empathy) processes. One week later, patients received the same battery after being randomized to a single dose of 40 IU intranasal oxytocin or placebo. Though the groups did not differ significantly on the social cognition composite score, oxytocin improved performance for the higher-level social cognitive tasks (Cohen's d = 1.0, p = 0.045). Subjects were unable to accurately guess which treatment they had received. The improvements found in higher-level social cognition encourage further studies into the therapeutic potential of oxytocin in schizophrenia.