A novel mechanism for regulating dopamine activity in subcortical sites and its possible relevance to schizophrenia is proposed. This hypothesis is based on the regulation of dopamine release into subcortical regions occurring via two independent mechanisms: (1) transient or phasic dopamine release caused by dopamine neuron firing, and (2) sustained, "background" tonic dopamine release regulated by prefrontal cortical afferents. Behaviorally relevant stimuli are proposed to cause short-term activation of dopamine cell firing to trigger the phasic component of dopamine release. In contrast, tonic dopamine release is proposed to regulate the intensity of the phasic dopamine response through its effect on extracellular dopamine levels. In this way, tonic dopamine release would set the background level of dopamine receptor stimulation (both autoreceptor and postsynaptic) and, through homeostatic mechanisms, the responsivity of the system to dopamine in these sites. In schizophrenics, a prolonged decrease in prefrontal cortical activity is proposed to reduce tonic dopamine release. Over time, this would elicit homeostatic compensations that would increase overall dopamine responsivity and thereby cause subsequent phasic dopamine release to elicit abnormally large responses.