NMDA antagonists provide the best pharmacological model of psychosis-related schizophrenia. Data from circuit analysis of the effects of the antagonism of NMDA receptors in the CA1 region of the hippocampus of rats in vitro suggest a hypothesis concerning cortical circuit dysfunction responsible for NMDA antagonist-dependent psychosis, relevant to the psychosis associated with schizophrenia. The NMDA antagonists may act by causing a selective, partial, disinhibition of cortical projection cells. The effects are partially due to the partial role of NMDA-dependent transmission in the excitatory glutamate drive of interneurons. Characterization of the selectivity is incomplete, but includes disinhibition of the recurrent inhibitory circuit and is concentration-sensitive. It may result from differences in NMDA receptors (NMDARs) on interneurons. At higher concentrations, antagonism of all NMDA-dependent transmission results in anesthesia. At low concentration, selective blockade of NMDA-dependent LTP of the recurrent inhibitory circuit may disrupt particular aspects of information processing involving learning and/or memory, consistent with the generation of abnormal associations. An endogenous peptide, NAAG, is shown to antagonize NMDARs in a manner similar to known psychotogenic agents like ketamine or phencyclidine. Finally, mechanisms that could enhance NMDAR function are discussed as possible therapeutic strategies for psychosis. Hippocampus 2001;11:569–577. © 2001 Wiley-Liss, Inc.