Although schizophrenia may result from dysfunction of the cerebral cortex the possible indirect involvement of the basal ganglia may be important as this neural system provides a major neural system through which the cortex affects behavior. Processing of cortical input occurs within the striatum, which is the main component of the basal ganglia, where excitatory cortical input is transformed to oppositely modulate the output nuclei of the basal ganglia. The details of this transformation, as well as the role of dopamine in this process, are beginning to unfold. Striatal projections to the globus pallidus, through connections with the subthalamic nucleus, modulate excitatory input to the output neurons of the basal ganglia, GABAergic neurons in the internal segment of the globus pallidus and in the substantia nigra, whereas striatal projections directly to these neurons, provide inhibitory inputs. Thus, cortically driven activity in these two striatal output pathways oppositely modulate the output neurons of the basal ganglia. Dopamine appears to play a crucial role in this transformation. D1 and D2 dopamine receptors are specifically expressed by striatonigral and striatopallidal neurons, respectively. The direct action of dopamine through these receptors appears to oppositely modulate the responsiveness of striatal output pathways to cortical input. Insights into the role of dopaminergic function within the basal ganglia may have direct relevance to the development of treatments for schizophrenia.