Diathesis-stress models of schizophrenia and other psychotic disorders have dominated theorizing about etiology for over three decades. More recently, with advances in our understanding of the biological processes mediating the effects of stress, these models have incorporated mechanisms to account for the adverse impact of stress on brain function. This review examines recent scientific findings on the role of the hypothalamic-pituitary-adrenal (HPA) axis, one of the primary neural systems triggered by stress exposure, in the expression of vulnerability for schizophrenia. The results indicate that psychotic disorders are associated with elevated baseline and challenge-induced HPA activity, that antipsychotic medications reduce HPA activation, and that agents that augment stress hormone (cortisol) release exacerbate psychotic symptoms. The cumulative findings are discussed in light of a neural diathesis-stress model that postulates that cortisol has the potential to increase activity of dopamine pathways that have been implicated in schizophrenia and other psychotic disorders.