Deep brain stimulation (DBS) has been shown to be effective for relief of Parkinson's disease, depression and obsessive-compulsive disorder in humans, but the effect of DBS on psychosis is largely unknown. In previous studies, we showed that inactivation of the medial septum or nucleus accumbens normalized the hyperactive and psychosis-related behaviors induced by psychoactive drugs. We hypothesized that DBS of the medial septum or nucleus accumbens normalizes the ketamine-induced abnormal behaviors and brain activity in freely moving rats. Male Long-Evans rats were subcutaneously injected with ketamine (3 mg/kg) alone, or given ketamine and DBS, or injected with saline alone. Subcutaneous injection of ketamine resulted in loss of gating of hippocampal auditory evoked potentials (AEPs), deficit in prepulse inhibition (PPI) and hyperlocomotion, accompanied by increased hippocampal gamma oscillations of 70–100 Hz. Continuous 130-Hz stimulation of the nucleus accumbens, or 100-Hz burst stimulation of the medial septum (1 s on and 5 s off) significantly attenuated ketamine-induced PPI deficit and hyperlocomotion. Medial septal stimulation also prevented the loss of gating of hippocampal AEPs and the increase in hippocampal gamma waves induced by ketamine. Neither septal or accumbens DBS alone without ketamine injection affected spontaneous locomotion or PPI. The results suggest that DBS of the medial septum or nucleus accumbens may be an effective method to alleviate psychiatric symptoms of schizophrenia. The effect of medial septal DBS in suppressing both hippocampal gamma oscillations and abnormal behaviors induced by ketamine suggests that hippocampal gamma oscillations are a correlate of disrupted behaviors.