Dysfunctional neural circuitry has been found to be involved in abnormalities of perception and cognition in patients with schizophrenia. Gamma oscillations are essential for integrating information within neural circuits and have therefore been associated with many perceptual and cognitive processes in healthy human subjects and animals. This review presents an overview of the neural basis of gamma oscillations and the abnormalities in the GABAergic interneuronal system thought to be responsible for gamma-range deficits in schizophrenia. We also review studies of gamma activity in sensory and cognitive processes, including auditory steady state response, attention, object representation, and working memory, in animals, healthy humans and patients with schizophrenia.