Existing pathophysiological models of schizophrenia are limited in their ability to account for all the clinical dimensions of the disorder. The purpose of this article is to describe a comprehensive hypothesis of the pathophysiology of schizophrenia and specifically how a deficit in neural regulation of developmental origin can lead to a pathologic form of neuroplasticity, i.e., neurochemical sensitization, which causes the onset and psychotic symptoms of the illness. We propose that the symptoms of schizophrenia may be caused by deficits in neural regulation resulting in a pathologic condition of neurochemical sensitization analogous to the preclinical model of pharmacologically-induced behavioral sensitization. This condition, if sustained, can lead to potential neurotoxic effects which produce structural neuronal alterations and persistent morbidity. Several lines of indirect and direct clinical evidence are consistent with this hypothesis. These include the ability of stimulant and psychotomimetic drugs to induce psychosis in normal subjects, the development of apparent sensitization to psychosis-inducing effects of stimulants in chronic stimulant abusers and the increased susceptibility of patients with schizophrenia to the psychotogenic effects of Dopamine (DA) agonists. This hypothesis integrates and extends the work of other investigators and is consistent with specific aspects of the longitudinal course of schizophrenia. The association of longer duration and more episodes of psychosis, with poor treatment response and outcome, are also consistent with this model. Form this hypothesis, specific predictions about the illness course, treatment interventions, and pathophysiologic features of schizophrenia can be derived and tested through clinical investigation.