At central synapses, glutamate is the main excitatory neurotransmitter. Once released from presynaptic terminals, glutamate activates a number of different glutamatergic receptors one of which is the ligand gated ionophore glutamatergic subtype N-methyl-D-aspartate receptors (NMDARs). NMDARs play a crucial role in controlling various determinants of synaptic function. N-acetylaspartylglutamate (NAAG) is the most prevalent peptide transmitter in the mammalian central nervous system. NAAG is released upon neuronal depolarization by a calcium-dependent process from glutamatergic and GABAergic neurons. It is cleaved by a specific peptidase located on astrocytes, glutamate carboxypeptidase type II (GCP-II), to N-acetylaspartate (NAA) and glutamate. Current evidence supports the hypothesis that NAAG is an endogenous agonist at G protein coupled mGluR3 receptors and an antagonist at NMDAR. In several disorders and animal models of human diseases, the levels of NAAG and the activity of GCP-II are altered in ways that are consistent with NAAG's role in regulation of glutamatergic neurotransmission. Several lines of evidence suggest that a dysfunction in glutamatergic via the NMDAR might be involved in schizophrenia. This hypothesis has evolved from findings that NMDAR antagonists such as phencyclidine (PCP or "angel dust"), produces a syndrome in normal individuals that closely resembles schizophrenia and exacerbates psychotic symptoms in patients with chronic schizophrenia. Recent postmortem, metabolic and genetic studies have provided evidence that hypofunction of discrete populations of NMDAR can contribute to the symptoms of schizophrenia, at least in some patients. The review outlines the role of endogenous NAAG at NMDAR neurotransmission and its putative role in the pathophysiology of schizophrenia.