The effect of placebo observed in schizophrenia clinical trials represents a growing problem that interferes with signal detection for treatments, increases costs of development, discourages investment in schizophrenia research and delays the introduction of new treatments. This paper seeks to clarify key issues related to this problem and identify potential solutions to them. Differences between placebo effect and response are characterized. Recent insights into the central nervous system mechanisms of placebo effect are described. This is followed by a description of protocol/study design and study conduct issues that are contributing to a growing placebo effect in clinical trials. Potential solutions to these problems are provided.