Behavioral genetic studies of humans have associated variation in the DTNBP1 gene with schizophrenia and its cognitive deficit phenotypes. The protein coded for by DTNBP1, dysbindin, is expressed within forebrain glutamatergic neurons, in which it interacts with proteins involved in vesicular trafficking and exocytosis. In order to further delineate the cellular, physiological, and behavioral phenotypes associated with reduced dysbindin expression, we conducted studies in mice carrying a null mutation within the dtnbp1 gene. Dysbindin mutants showed impairments of spatial working memory compared with wild-type controls; heterozygous mice showed intermediate levels of cognitive dysfunction. Deep-layer pyramidal neurons recorded in the prefrontal cortex of mutant mice showed reductions in paired-pulse facilitation, and evoked and miniature excitatory post-synaptic currents, indicating a difference in the function of pre-synaptic glutamatergic terminals as well as elevated spike thresholds. Taken together, these data indicate that dysbindin potently regulates excitatory transmission in the prefrontal cortex, potentially through a pre-synaptic mechanism, and consequently modulates cognitive functions depending on this brain region, providing new insights into the molecular mechanisms underlying cortical dysfunction in schizophrenia.