Neuregulin 1 (NRG1) is a trophic factor thought to play a role in neural development. Recent studies suggest that it may regulate neurotransmission, mechanisms of which remain elusive. Here we show that NRG1, via stimulating GABA release from interneurons, inhibits pyramidal neurons in the prefrontal cortex (PFC). Ablation of the NRG1 receptor ErbB4 in parvalbumin (PV)-positive interneurons prevented NRG1 from stimulating GABA release and from inhibiting pyramidal neurons. PV-ErbB4(-/-) mice exhibited schizophrenia-relevant phenotypes similar to those observed in NRG1 or ErbB4 null mutant mice, including hyperactivity, impaired working memory, and deficit in prepulse inhibition (PPI) that was ameliorated by diazepam, a GABA enhancer. These results indicate that NRG1 regulates the activity of pyramidal neurons by promoting GABA release from PV-positive interneurons, identifying a critical function of NRG1 in balancing brain activity. Because both NRG1 and ErbB4 are susceptibility genes of schizophrenia, our study provides insight into potential pathogenic mechanisms of schizophrenia and suggests that PV-ErbB4(-/-) mice may serve as a model in the study of this and relevant brain disorders.