Postmortem studies have shown that schizophrenia produces a reduction in the 67 kilo-Dalton isoform of glutamic acid decarboxylase (GAD67), a key enzyme for GABA synthesis. NMDA receptor antagonists have been extensively used to study schizophrenia because they can induce many aspects of the disease, including the decrease in GAD67. It is generally thought that this reduction in GAD implies a reduction in functional inhibition, but direct evidence had been lacking. We have therefore performed physiological studies in slices of prefrontal cortex taken from rats treated with the NMDAR antagonist ketamine. Both frequency and amplitude of miniature inhibitory postsynaptic currents (mIPSCs) were reduced. Consistent with a reduction of inhibition, we observed an increase in postsynaptic excitability. The increased excitability is likely to result from disinhibition because mEPSC properties and intrinsic excitability were not changed. Ketamine did not affect inhibition or GAD levels in young rats, indicating a developmental regulation that may be related to the developmental increase in ketamine sensitivity that occurs in humans. Our results show that NMDAR antagonist produces biochemical changes in the GABA system that lead to a functional disinhibition. Such disinhibition would be expected to decrease gamma oscillations, which are reduced in schizophrenia.