Background: Neuroimaging studies in humans have implicated both dysfunction of the medial temporal lobe (MTL) and the dopamine system in psychosis, but the relationship between them is unclear. We addressed this issue by measuring MTL activation and striatal dopaminergic function in individuals with an At Risk Mental State (ARMS) for psychosis, using functional magnetic resonance imaging (fMRI) and positron emission tomography (PET), respectively. Methods: Thirty-four subjects (20 ARMS and 14 Controls), matched for age, gender, digit span performance, and premorbid IQ, were scanned using fMRI, while performing a verbal encoding and recognition task, and using 18F-DOPA PET. All participants were naïve to antipsychotic medication. Results: ARMS subjects showed reduced MTL activation when encoding words and made more false alarm responses for Novel words than controls. The relationship between striatal dopamine function and MTL activation during both verbal encoding and verbal recognition was significantly different in ARMS subjects compared with controls. Conclusion: An altered relationship between MTL function and dopamine storage/synthesis capacity exists in the ARMS and may be related to psychosis vulnerability.