Abstract The functional optimization of neural ensembles is central to human higher cognitive functions. When the functions through which neural activity is tuned fail to develop or break down, symptoms and cognitive impairments arise. This review will consider ways that disturbances in the balance of excitation and inhibition might develop and be expressed in cortical networks in association with schizophrenia. This presentation will be framed within a developmental perspective that begins with disturbances in glutamate synaptic development in utero. It will consider developmental correlates and consequences including compensatory mechanisms that increase intrinsic excitability or reduce inhibitory tone. It will also consider the possibility that these homeostatic increases in excitability have potential negative functional and structural consequences. These negative functional consequences of disinhibition may include reduced working memory-related cortical activity associated with the downslope of the “inverted-U” input-output curve, impaired spatial tuning of neural activity and impaired sparse coding of information, deficits in the temporal tuning of neural activity and its implication for neural codes, and conclude by considering the functional significance of noisy activity for neural network function. This presentation will draw on computational neuroscience and pharmacologic and genetic studies in animals and humans, particularly those involving NMDA glutamate receptor antagonists, to illustrate principles of network regulation that give rise to features of neural dysfunction associated with schizophrenia. While this presentation focuses on schizophrenia, the general principles outlined in this review may have broad implications for considering disturbances in the regulation of neural ensembles in psychiatric disorders.