Schizophrenia (SCZ) is a heterogeneous disorder that has severe and, in many cases, irreversible cognitive consequences. Studying individuals who are considered "at-risk" for SCZ provides a view of the pathophysiology of SCZ without confounds associated with psychosis (e.g., medication). In addition, abnormalities found in at-risk groups may serve as markers of vulnerability and predictors of future disease onset. At risk research has preponderantly focused on cognition, and a number of theories have emerged. However, less is known about emotion processing abnormalities and sensory interference, which are often described near the time of a first episode onset. The principal aim of this dissertation was to investigate potential markers of risk for SCZ. This project encompassed: (1) a review of the current literature on emotion processing abnormalities in individuals at familial high risk (FHR), those higher in schizotypal characteristics, and individuals considered in the prodrome to SCZ; (2) an investigation of the interference of negative emotion on working memory in those at FHR; and (3) an examination of latent inhibition (LI), a phenomenon associated with sensory interference, in those at FHR and community controls, with the effect of high versus low schizotypal characteristics measured in both groups. In study 1, the review of the literature on emotion processing of at-risk groups suggests that emotion abnormalities that occur with SCZ also occur in individuals at risk. The review proposes common abnormalities among the at-risk groups, a model of emotion dysfunction from the premorbid to the prodromal phases of illness, targets of intervention, and an agenda for future research. In study 2, interference of negative emotion on working memory performance was specific to males at FHR. In study 3, individuals at FHR exhibited disrupted LI, regardless of level of schizotypal characteristics. In addition, controls who scored higher in negative schizotypal characteristics demonstrated impaired LI. Together, these findings highlight pathophysiological processes concerning emotion and sensory interference that are active prior to disease onset; emphasize the importance of gender differences in those at FHR; and suggest potential markers of vulnerability in individuals at risk for SCZ.