Atypical antipsychotics have greatly enhanced the treatment of schizophrenia. The mechanisms underlying the effectiveness and adverse effects of these drugs are, to date, not sufficiently explained. This article summarises the hypothetical mechanisms of action of atypical antipsychotics with respect to the neurobiology of schizophrenia.When considering treatment models for schizophrenia, the role of dopamine receptor blockade and modulation remains dominant. The optimal occupancy of dopamine D(2) receptors seems to be crucial to balancing efficacy and adverse effects - transient D(2) receptor antagonism (such as that attained with, for example, quetiapine and clozapine) is sufficient to obtain an antipsychotic effect, while permanent D(2) receptor antagonism (as is caused by conventional antipsychotics) increases the risk of adverse effects such as extrapyramidal symptoms. Partial D(2) receptor agonism (induced by aripiprazole) offers the possibility of maintaining optimal blockade and function of D(2) receptors. Balancing presynaptic and postsynaptic D(2) receptor antagonism (e.g. induced by amisulpride) is another mechanism that can, through increased release of endogenous dopamine in the striatum, protect against excessive blockade of D(2) receptors. Serotonergic modulation is associated with a beneficial increase in striatal dopamine release. Effects on the negative and cognitive symptoms of schizophrenia relate to dopamine release in the prefrontal cortex; this can be modulated by combined D(2) and serotonin 5-HT(2A) receptor antagonism (e.g. by olanzapine and risperidone), partial D(2) receptor antagonism or the preferential blockade of inhibitory dopamine autoreceptors. In the context of the neurodevelopmental disconnection hypothesis of schizophrenia, atypical antipsychotics (in contrast to conventional antipsychotics) induce neuronal plasticity and synaptic remodelling, not only in the striatum but also in other brain areas such as the prefrontal cortex and hippocampus. This mechanism may normalise glutamatergic dysfunction and structural abnormalities and affect the core pathophysiological substrates for schizophrenia.