A key feature of schizophrenia is the inability to screen out irrelevant sensory input. Prepulse inhibition (PPI) of the startle response, a cross-species measure of sensorimotor gating, provides a valuable opportunity to study this feature. Patients with schizophrenia, first-degree relatives of patients with schizophrenia, patients with schizotypal personality disorder and healthy individuals scoring high on psychometric measures of psychosis-proneness display reduced PPI. Animal models of disrupted PPI have proved valuable for the evaluation of existing and potential new treatments for schizophrenia. Animal studies have also shown that PPI is modulated by the cortico-striatal-pallido-thalamic circuitry involving the prefrontal cortex, thalamus, hippocampus, amygdala, nucleus accumbens, striatum, ventral pallidum, globus pallidus, and subpallidal efferents to the pedunculopontine nucleus. Recent neuroimaging data from our and other laboratories confirm the involvement of this circuitry in (a) normal PPI in healthy people, (b) deficient PPI in patients with schizophrenia and related conditions, and (c) the effects of pharmacological agents relevant to the treatment of schizophrenic illness.