Abstract Background Schizophrenia has been primarily conceptualized as a disorder of high-order cognitive functions with deficits in executive brain regions. Yet due to the increasing reports of early sensory processing deficit, recent models focus more on the developmental effects of impaired sensory process on high-order functions. The present study examined whether this pathological interaction relates to an overarching system-level imbalance, specifically a disruption in macroscale hierarchy affecting integration and segregation of unimodal and transmodal networks. Methods We applied a novel combination of connectome gradient and stepwise connectivity analysis to resting-state fMRI to characterize the sensorimotor-to-transmodal cortical hierarchy organization (96 patients v. 122 controls). Results We demonstrated compression of the cortical hierarchy organization in schizophrenia, with a prominent compression from the sensorimotor region and a less prominent compression from the frontal−parietal region, resulting in a diminished separation between sensory and fronto-parietal cognitive systems. Further analyses suggested reduced differentiation related to atypical functional connectome transition from unimodal to transmodal brain areas. Specifically, we found hypo-connectivity within unimodal regions and hyper-connectivity between unimodal regions and fronto-parietal and ventral attention regions along the classical sensation-to-cognition continuum (voxel-level corrected, p < 0.05). Conclusions The compression of cortical hierarchy organization represents a novel and integrative system-level substrate underlying the pathological interaction of early sensory and cognitive function in schizophrenia. This abnormal cortical hierarchy organization suggests cascading impairments from the disruption of the somatosensory−motor system and inefficient integration of bottom-up sensory information with attentional demands and executive control processes partially account for high-level cognitive deficits characteristic of schizophrenia.