The neural mechanisms underlying cognitive deficits in schizophrenia remain essentially unknown. The GABA hypothesis proposes that reduced neuronal GABA concentration and neurotransmission results in cognitive impairments in schizophrenia. However, few in vivo studies have directly examined this hypothesis. We used magnetic resonance spectroscopy (MRS) at high field to measure visual cortical GABA levels in 13 subjects with schizophrenia and 13 demographically matched healthy control subjects. We found that the schizophrenia group had an approximately 10% reduction in GABA concentration. We further tested the GABA hypothesis by examining the relationship between visual cortical GABA levels and orientation-specific surround suppression (OSSS), a behavioral measure of visual inhibition thought to be dependent on GABAergic synaptic transmission. Previous work has shown that subjects with schizophrenia exhibit reduced OSSS of contrast discrimination (Yoon et al., 2009). For subjects with both MRS and OSSS data (n = 16), we found a highly significant positive correlation (r = 0.76) between these variables. GABA concentration was not correlated with overall contrast discrimination performance for stimuli without a surround (r = -0.10). These results suggest that a neocortical GABA deficit in subjects with schizophrenia leads to impaired cortical inhibition and that GABAergic synaptic transmission in visual cortex plays a critical role in OSSS.