Dysfunctional cortical inhibition (CI) has been suggested as a mechanism through which symptoms of schizophrenia (SCZ) are mediated. Cortical inhibition refers to a neurophysiological process in which gamma-aminobutyric acid (GABA) inhibitory interneurons selectively attenuate the activity of other neurons (e.g., pyramidal neurons) in the cortex. Here we review the neuroanatomic and neurophysiological evidence suggesting CI deficits among persons with SCZ. We also review genetic studies that have linked CI deficits to a polymorphism in the alpha(7)-nicotinic cholinergic receptor, thereby positing that a specific genetic mechanism underlies SCZ-related GABA interneuron dysfunction. We will conclude by reviewing the role of CI as a mechanism mediating the therapeutic action of antipsychotic medications.