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BACKGROUND: It is unclear whether, like in schizophrenia, psychosis-related disruption in connectivity between certain regions, as an index of intrinsic functional disintegration, occurs in schizophrenia-like psychosis of epilepsy (SLPE). In this study, we sought to determine abnormal patterns of resting-state EEG oscillations and functional connectivity in patients with SLPE, compared with nonpsychotic epilepsy patients, and to assess correlations with psychopathological deficits. METHODOLOGY/PRINCIPAL FINDINGS: Resting EEG was recorded in 21 patients with focal epilepsy and SLPE and in 21 clinically-matched non-psychotic epilepsy controls. Source current density and functional connectivity were determined using eLORETA software. For connectivity analysis, a novel nonlinear connectivity measure called "lagged phase synchronization" was used. We found increased theta oscillations in regions involved in the default mode network (DMN), namely the medial and lateral parietal cortex bilaterally in the psychotic patients relative to their nonpsychotic counterparts. In addition, patients with psychosis had increased beta temporo-prefrontal connectivity in the hemisphere with predominant seizure focus. This functional connectivity in temporo-prefrontal circuits correlated with positive symptoms. Additionally, there was increased interhemispheric phase synchronization between the auditory cortex of the affected temporal lobe and the Broca's area correlating with auditory hallucination scores. CONCLUSIONS/SIGNIFICANCE: In addition to dysfunction of parietal regions that are part of the DMN, resting-state disrupted connectivity of the medial temporal cortex with prefrontal areas that are either involved in the DMN or implicated in psychopathological dysfunction may be critical to schizophrenia-like psychosis, especially in individuals with temporal lobe epilepsy. This suggests that DMN deficits might be a core neurobiological feature of the disorder, and that abnormalities in theta oscillations and beta phase synchronization represent the underlying neural activity.