Understanding of the neurophysiological basis of cognitive, behavioural and perceptual disturbances associated with long-term cannabis use has grown dramatically. Exogenous cannabinoids alter the normative functioning of the endogenous cannabinoid system. This system is an important regulator of neurotransmission. Recent research has demonstrated abnormalities of the cannabinoid system in schizophrenia. The purpose of the present paper was to selectively review the links between cannabis use and psychosis, drawing upon recent epidemiological, clinical, cognitive, brain imaging and neurobiological research. The aim is to assist clinicians to probe more deeply into the newly unfolding world of cannabinoid physiology and to critically evaluate the potential role of cannabis in the onset and persistence of cognitive impairments and psychosis in otherwise healthy users and in schizophrenia.