The pathogenesis of schizophrenia has yet to be fully characterized. Gene-environment interactions have been found to play a crucial role in the vulnerability to this disease. Among various environmental factors, inflammatory immune processes have been most clearly implicated in the etiology and pathology of schizophrenia. Cytokines, regulators of immune/inflammatory reactions and brain development, emerge as part of a common pathway of genetic and environmental components of schizophrenia. Maternal infection, obstetric complications, neonatal hypoxia and brain injury all recruit cytokines to mediate inflammatory processes. Abnormal expression levels of specific cytokines such as epidermal growth factor, interleukins (IL) and neuregulin-1 are found both in the brain and peripheral blood of patients with schizophrenia. Accordingly, cytokines have been proposed to transmit peripheral immune/inflammatory signals to immature brain tissue through the developing blood-brain barrier, perturbing structural and phenotypic development of the brain. This cytokine hypothesis of schizophrenia is also supported by modeling experiments in animals. Animals treated with specific cytokines of epidermal growth factor, IL-1, IL-6, and neuregulin-1 as embryos or neonates exhibit schizophrenia-like behavioral abnormalities after puberty, some of which are ameliorated by treatment with antipsychotics. In this review, we discuss the neurobiological mechanisms underlying schizophrenia and novel antipsychotic candidates based on the cytokine hypothesis.