Decreased GABAergic signaling is among the more robust pathologies observed postmortem in schizophrenia; however, the functional consequences of this deficit are still largely unknown. Here, we demonstrate, in a verified animal model of schizophrenia, that a reduced expression of parvalbumin (PV)-containing interneurons is correlated with a reduction in coordinated neuronal activity during task performance in freely moving rats. More specifically, methylazoxymethanol acetate (MAM)-treated rats display a decreased density of parvalbumin-positive interneurons throughout the medial prefrontal cortex (mPFC) and ventral (but not dorsal) subiculum of the hippocampus. Furthermore, the reduction in interneuron functionality is correlated with a significantly reduced gamma-band response to a conditioned tone during a latent inhibition paradigm. Finally, deficits in mPFC and ventral hippocampal oscillatory activity are associated with an impaired behavioral expression of latent inhibition in MAM-treated rats. Thus, we propose that a decrease in intrinsic GABAergic signaling may be responsible, at least in part, for the prefrontal and hippocampal hypofunctionality observed during task performance, which is consistently observed in animal models as well as in schizophrenia in humans. In addition, a deficit in intrinsic GABAergic signaling may be the origin of the hippocampal hyperactivity purported to underlie the dopamine dysfunction in psychosis. Such information is central to gaining a better understanding of the disease pathophysiology and alternate pharmacotherapeutic approaches.