Schizophrenia is a major mental disorder that affects approximately 1% of the population worldwide. Cognitive deficits are a key feature of schizophrenia and a primary cause of long-term disability. Current neurophysiological models of schizophrenia focus on distributed brain dysfunction with bottom-up as well as top-down components. Bottom-up deficits in cognitive processing are driven by impairments in basic perceptual processes that localize to primary sensory brain regions. Within the auditory system, deficits are apparent in elemental sensory processing, such as tone matching following brief delay. Such deficits lead to impairments in higher-order processes such as phonological processing and auditory emotion recognition. Within the visual system, deficits are apparent in functioning of the magnocellular visual pathway, leading to higher-order deficits in processes such as perceptual closure, object recognition, and reading. In both auditory and visual systems, patterns of deficit are consistent with underlying impairment of brain N-methyl-d-aspartate receptor systems.