LPFC dysfunction is a well-established neural impairment in schizophrenia and is associated with worse symptoms. However, how LPFC activation influences symptoms is unclear. Previous findings in healthy individuals demonstrate that lateral prefrontal cortex (LPFC) activation during cognitive control of emotional information predicts mood and behavior in response to interpersonal conflict, thus impairments in these processes may contribute to symptom exacerbation in schizophrenia. We investigated whether schizophrenia participants show LPFC deficits during cognitive control of emotional information, and whether these LPFC deficits prospectively predict changes in mood and symptoms following real-world interpersonal conflict. During fMRI, 23 individuals with schizophrenia or schizoaffective disorder and 24 healthy controls completed the Multi-Source Interference Task superimposed on neutral and negative pictures. Afterwards, schizophrenia participants completed a 21-day online daily-diary in which they rated the extent to which they experienced mood and schizophrenia-spectrum symptoms, as well as the occurrence and response to interpersonal conflict. Schizophrenia participants had lower dorsal LPFC activity (BA9) during cognitive control of task-irrelevant negative emotional information. Within schizophrenia participants, DLPFC activity during cognitive control of emotional information predicted changes in positive and negative mood on days following highly distressing interpersonal conflicts. Results have implications for understanding the specific role of LPFC in response to social stress in schizophrenia, and suggest that treatments targeting LPFC-mediated cognitive control of emotion could promote adaptive response to social stress in schizophrenia.