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BACKGROUND AND HYPOTHESIS Despite accounting for significant disease morbidity in schizophrenia, the neuropathological basis of negative symptoms remains poorly understood and options for treatment limited. Our recent study identified robust associations between diminished auditory cortex (AC) dynamic range and social functioning impairments and negative symptoms in first episode psychosis (FESz). The current investigation examined the progression of these relationships 4-8 months from baseline testing. STUDY DESIGN Twenty-six FESz and 38 healthy controls (HC) were tested at baseline and follow-up. Magnetoencephalography (MEG) was recorded during binaural presentation of tones (75, 80, and 85 dB). Assessments included the MATRICS cognitive consensus battery (MCCB) and Global Functioning: Role and Social scales (GFR/GFS) and the Positive and Negative Syndrome Scale. STUDY RESULTS Overall, FESz exhibited a blunted response to increasing tone intensity relative to HC. While this deficit did not change over time at the group level, recovery of right hemisphere AC dynamic range (85-75 dB response) among FESz individuals was associated with reductions in negative symptoms (ρ = -0.50). Diminished dynamic range was also associated with impaired GFS (ρ = 0.65), GFR (ρ = 0.51), and MCCB (ρ = 0.49) at baseline and increased negative symptoms at baseline (ρ = -0.53) and follow-up (ρ = -0.51). CONCLUSION Despite persistent dynamic range impairment in FESz as a group, individual recovery of this AC response property was associated with significant reduction in negative symptoms. Identification of a functional neural deficit that tracts progression of negative symptoms during a critical period for disease modification is essential to the management of these devastating and historically treatment refractory symptoms.