Scientists have long sought to characterize the pathophysiologic basis of schizophrenia and develop biomarkers that could identify the illness. Extensive postmortem and in vivo neuroimaging research has described the early involvement of the hippocampus in the pathophysiology of schizophrenia. In this context, we have developed a hypothesis that describes the evolution of schizophrenia—from the premorbid through the prodromal stages to syndromal psychosis—and posits dysregulation of glutamate neurotransmission beginning in the CA1 region of the hippocampus as inducing attenuated psychotic symptoms and initiating the transition to syndromal psychosis. As the illness progresses, this pathological process expands to other regions of the hippocampal circuit and projection fields in other anatomic areas including the frontal cortex, and induces an atrophic process in which hippocampal neuropil is reduced and interneurons are lost. This paper will describe the studies of our group and other investigators supporting this pathophysiological hypothesis, as well as its implications for early detection and therapeutic intervention.