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Background: Impairments in language processing in schizophrenia (ScZ) are a central aspect of the disorder but the underlying pathophysiology mechanisms are unclear. In the current study, we tested the hypothesis that neural oscillations are impaired during speech tracking in early-stage ScZ and in participants at clinical high-risk for psychosis (CHR-P). Method: Magnetoencephalography (MEG) was used in combination with source reconstructed time-series to examine delta and theta-band entrainment during continuous speech. Participants were presented with a 5-minute audio recording during which they either attened to the story or word level. MEG-data were obtained from n = 22 CHR-P participants, n = 23 early-stage ScZ-patients, and n = 44 healthy controls (HC). Data were analysed with a Mutual Information (MI) approach to compute statistical dependence between the MEG and auditory signal, thus estimating individual speech-tracking ability. MEG-activity was reconstructed in a language network (bilateral inferior frontal cortex [F3T; Broca’s], superior temporal areas [STS3, STS4; Wernicke’s areas], and primary auditory cortex [bilateral HES; Heschl’s gyrus]). MEG-data were correlated with clinical symptoms. Results: Theta-band entrainment in left Heschl’s gyrus, averaged across groups, was significantly lower in the STORY compared to WORD condition (p = 0.022), and averaged over conditions, significantly lower in CHR-Ps (p = 0.045), but intact in early ScZ patients (p = 0.303), compared to controls. Correlation analyses between MEG data and symptom indicated that lower theta-band tracking in CHR-Ps was linked to the severity of perceptual abnormalities (p = 0.018). Conclusion: Our results show that CHR-P participants involve impairments in theta-band entrainment during speech tracking in left primary auditory cortex while higher-order speech processing areas were intact. Moreover, the severity of aberrant perceptual experiences in CHR-P participants correlated with deficits in theta-band entrainment. Together, these findings highlight the possibility that neural oscillations during language processing could reveal fundamental abnormalities in speech processing which may constitute candidate biomarkers for early detection and diagnosis of ScZ.