Although innumerable studies using an auditory sensory gating paradigm have confirmed that individuals with schizophrenia (SZ) show less reduction in brain response to the second in a pair of clicks, this large literature has not yielded consensus on the circuit(s) responsible for gating nor for the gating difference in SZ. Clinically stable adult inpatients (N = 157) and matched community participants (N = 90) participated in a standard auditory sensory gating protocol. Responses to paired clicks were quantified as peak-to-peak amplitude from a response at approximately 50 ms to a response at approximately 100 ms in MEG-derived source waveforms. For bilateral sources in each of four regions near Heschl's gyrus, the gating ratio was computed as the response to the second stimulus divided by the response to the first stimulus. Spectrally resolved Granger causality quantified effective connectivity among regions manifested in alpha-band oscillatory coupling before and during stimulation. Poorer sensory gating localized to A1 in SZ than in controls confirmed previous results, here found in adjacent brain regions as well. Spontaneous, stimulus-independent effective connectivity within the hemisphere from angular gyrus to portions of the superior temporal gyrus was lower in SZ and correlated with gating ratio. Significant involvement of frontal and subcortical brain regions previously proposed as contributing to the auditory gating abnormality was not found. Findings point to endogenous connectivity evident in a sequence of activity from angular gyrus to portions of superior temporal gyrus as a mechanism contributing to normal and abnormal gating in SZ and potentially to sensory and cognitive symptoms.