Cognitive deficits associated with frontal lobe dysfunction are a determinant of long-term disability in schizophrenia and are not effectively treated with available medications. Clinical studies show that many aspects of these deficits are transiently induced in healthy individuals treated with N-methyl-D-aspartate (NMDA) antagonists. These findings and recent genetic linkage studies strongly implicate NMDA receptor deficiency in schizophrenia and suggest that reversing this deficiency is pertinent to treating the cognitive symptoms of schizophrenia. Despite the wealth of behavioral data on the effects of NMDA antagonist treatment in humans and laboratory animals, there is a fundamental lack of understanding about the mechanisms by which a general state of NMDA deficiency influences the function of cortical neurons. Using ensemble recording in freely moving rats, we found that NMDA antagonist treatment, at doses that impaired working memory, potentiated the firing rate of most prefrontal cortex neurons. This potentiation, which correlated with expression of behavioral stereotypy, resulted from an increased number of irregularly discharged single spikes. Concurrent with the increase in spike activity, there was a significant reduction in organized bursting activity. These results identify two distinct mechanisms by which NMDA receptor deficiency may disrupt frontal lobe function: an increase in disorganized spike activity, which may enhance cortical noise and transmission of disinformation; and a decrease in burst activity, which reduces transmission efficacy of cortical neurons. These findings provide a physiological basis for the NMDA receptor deficiency model of schizophrenia and may clarify the nature of cortical dysfunction in this disease.