Functional Magnetic Resonance Imaging (fMRI) is a modern technique for neuroimaging that has the ability of localizing neural activity with a high spatial resolution. The fMRI technique utilizes local blood oxygenation changes, which are reflected as small intensity changes in a special type of Magnetic Resonance images. Its ability to detect changes in function in the healthy and unhealthy brain and localization of abnormal function makes it an ideal technique in the treatment follow-up of many neural illnesses and lesions. It has already been applied clinically for the localization of functional areas affected by tumours, pre- and post-operatively. Schizophrenia, a major illness, present in more than the one percent of the whole population, is an illness that has been recently studied with functional neuroimaging, with more than 300 peer-reviewed journal papers about fMRI and schizophrenia. Understanding the neural substrates of schizophrenia requires a precise determination of the extent and distribution of abnormalities in brain anatomy and function. Due to the widespread distribution of symptoms, a defined phenomenological approach to this disease should be used in order to precisely relate abnormalities, symptoms and prognosis. Patients with dominant positive symptoms, such as auditory hallucinations and delusions, may have different brain abnormalities than those with marked negative symptoms. Thus, presence of auditory hallucinations in schizophrenic patients is taken in this study as the criterion for the selection of a homogeneous group of auditory hallucinatory schizophrenic patients. This thesis presents the application of fMRI to study the schizophrenia illness. Finally, a new method for filtering fMRI data, NL-means, has been proposed, and it is suggested to be used as part of the pre-processing in fMRI studies.