In patients with schizophrenia, a variety of anomalies have been detected in the limbic lobe, a phylogenetically old portion of the cerebral cortex that includes the anterior cingulate region and hippocampal formation. In addition, the basolateral subdivision of the amygdala, another component of the limbic lobe, has been implicated in the pathophysiology of psychotic disorders, in part because it sends important inputs to the cingulate cortex and hippocampus. The three major components of the limbic lobe play a central role in generating disturbances in motivation, attention, emotion, and social interactions in schizophrenia and bipolar disorder. This chapter describes studies in both human and rodent brains that have contributed to our understanding of how this complex circuitry may be altered during development, leading to the appearance of psychotic disorders during late adolescence and early adulthood. It discusses two particular neurotransmitters: gamma-aminobutyric acid (GABA) and dopamine.