Prosaposin (PSAP) and progranulin (PGRN) are two lysosomal proteins that interact and modulate the metabolism of lipids, particularly sphingolipids. Alterations in sphingolipid metabolism have been found in schizophrenia. Genetic associations of PSAP and PGRN with schizophrenia have been reported. To further clarify the role of PSAP and PGRN in schizophrenia, we examined PSAP and PGRN levels in postmortem cingulate cortex tissue from healthy controls along with patients who had suffered from schizophrenia, bipolar disorder, or major depressive disorder. We found that PSAP and PGRN levels are reduced specifically in schizophrenia patients. To understand the role of PSAP in the cingulate cortex, we used an AAV strategy to knock down PSAP in neurons located in this region. Neuronal PSAP knockdown led to the downregulation of neuronal PGRN levels and behavioral abnormalities. Cingulate-PSAP-deficient mice exhibited increased anxiety-like behavior and impaired prepulse inhibition, as well as intact locomotion, working memory, and a depression-like state. The behavioral changes were accompanied by increased early growth response protein 1 (EGR-1) and activity-dependent cytoskeleton-associated protein (ARC) levels in the sensorimotor cortex and hippocampus, regions implicated in circuitry dysfunction in schizophrenia. In conclusion, PSAP and PGRN downregulation in the cingulate cortex is associated with schizophrenia pathophysiology.