It has become increasingly clear that schizophrenia does not result from the dysfunction of a single neurotransmitter system, but rather pathologic alterations of several interacting systems. Targeting of neuropeptide neuromodulator systems, capable of concomitantly regulating several transmitter systems, represents a promising approach for the development of increasingly effective and side effect-free antipsychotic drugs. Neurotensin (NT) is a neuropeptide implicated in the pathophysiology of schizophrenia that specifically modulates neurotransmitter systems previously demonstrated to be dysregulated in this disorder. Clinical studies in which cerebrospinal fluid (CSF) NT concentrations have been measured revealed a subset of schizophrenic patients with decreased CSF NT concentrations that are restored by effective antipsychotic drug treatment. Considerable evidence also exists concordant with the involvement of NT systems in the mechanism of action of antipsychotic drugs. The behavioral and biochemical effects of centrally administered NT remarkably resemble those of systemically administered antipsychotic drugs, and antipsychotic drugs increase NT neurotransmission. This concatenation of findings led to the hypothesis that NT functions as an endogenous antipsychotic. Moreover, typical and atypical antipsychotic drugs differentially alter NT neurotransmission in nigrostriatal and mesolimbic dopamine (DA) terminal regions, and these effects are predictive of side effect liability and efficacy, respectively. This review summarizes the evidence in support of a role for the NT system in both the pathophysiology of schizophrenia and the mechanism of action of antipsychotic drugs.