Dysfunctional emotional processing affects social functioning in patients with schizophrenia. However, the relationship between emotional perception and response in social interaction has not been elucidated. Twenty-seven patients with schizophrenia and 27 normal controls performed a virtual reality social encounter task in which they introduced themselves to avatars expressing happy, neutral, or angry emotions while verbal response duration and onset time were measured and perception of emotional valence and arousal, and state anxiety were rated afterwards. Self-reported trait-affective scale scores and the Positive and Negative Syndrome Scale (PANSS) ratings were also obtained. Patient group significantly underestimated the valence and arousal of angry emotions expressed by an avatar. While valence and arousal ratings of happy avatars were comparable between groups, patient group reported significantly higher state anxiety in response to happy avatars. State anxiety ratings significantly decreased from encounters with neutral to happy avatars in normal controls while no significant decrease was observed in the patient group. The Social Anhedonia Scale and PANSS negative symptom subscale scores (blunted affect, emotional withdrawal, and passive/ apathetic social withdrawal items) were significantly correlated with state anxiety ratings of the encounters with happy avatars. These results suggest that patients with schizophrenia have interference with the experience of pleasure in social interactions which may be associated with negative symptoms.