Delusions are maladaptive beliefs about the world. Based upon experimental evidence that prediction error-a mismatch between expectancy and outcome--drives belief formation, this study examined the possibility that delusions form because of disrupted prediction--error processing. We used fMRI to determine prediction-error-related brain responses in 12 healthy subjects and 12 individuals (7 males) with delusional beliefs. Frontal cortex responses in the patient group were suggestive of disrupted prediction-error processing. Furthermore, across subjects, the extent of disruption was significantly related to an individual's propensity to delusion formation. Our results support a neurobiological theory of delusion formation that implicates aberrant prediction-error signalling, disrupted attentional allocation and associative learning in the formation of delusional beliefs.