The association between cannabis use and psychosis has long been recognized. Recent advances in knowledge about cannabinoid receptor function have renewed interest in this association. Converging lines of evidence suggest that cannabinoids can produce a full range of transient schizophrenia-like positive, negative, and cognitive symptoms in some healthy individuals. Also clear is that in individuals with an established psychotic disorder, cannabinoids can exacerbate symptoms, trigger relapse, and have negative consequences on the course of the illness. The mechanisms by which cannabinoids produce transient psychotic symptoms, while unclear may involve dopamine, GABA, and glutamate neurotransmission. However, only a very small proportion of the general population exposed to cannabinoids develop a psychotic illness. It is likely that cannabis exposure is a "component cause" that interacts with other factors to "cause" schizophrenia or a psychotic disorder, but is neither necessary nor sufficient to do so alone. Nevertheless, in the absence of known causes of schizophrenia, the role of component causes remains important and warrants further study. Dose, duration of exposure, and the age of first exposure to cannabinoids may be important factors, and genetic factors that interact with cannabinoid exposure to moderate or amplify the risk of a psychotic disorder are beginning to be elucidated. The mechanisms by which exposure to cannabinoids increase the risk for developing a psychotic disorder are unknown. However, novel hypotheses including the role of cannabinoids on neurodevelopmental processes relevant to psychotic disorders are being studied.