Several decades of research attempting to explain schizophrenia in terms of the dopamine hyperactivity hypothesis have produced disappointing results. A new hypothesis focusing on hypofunction of the NMDA glutamate transmitter system is emerging as a potentially more promising concept. In this article, we present a version of the NMDA receptor hypofunction hypothesis that has evolved from our recent studies pertaining to the neurotoxic and psychotomimetic effects of PCP and related NMDA antagonist drugs. In this article, we examine this hypothesis in terms of its strengths and weaknesses, its therapeutic implications and ways in which it can be further tested.