We have shown previously that aberrant hippocampal (HPC) output underlies the dopamine (DA) dysfunction observed in the methylazoxymethanol acetate (MAM) developmental model of schizophrenia in the rodent. This alteration of HPC activity was proposed to result from a reduction in parvalbumin (PV)-expressing GABAergic interneurons and consequent destabilization of the output of pyramidal neurons, as well as disrupted activation across a broad neural network. In vivo extracellular recordings were performed in the ventral tegmental area (VTA) and ventral HPC of saline- (SAL) and MAM-treated animals. A novel benzodiazepine-positive allosteric modulator (PAM), selective for the α5 subunit of the GABA(A) receptor, SH-053-2'F-R-CH3, was tested for its effects on the output of the HPC, leading to dopamine system hyperactivity in MAM-treated animals. In addition, the effect of SH-053-2'F-R-CH3 on the hyperactive locomotor response to amphetamine in MAM animals was examined. We demonstrate that treatment with the α5GABA(A)R PAM reduced the number of spontaneously active DA neurons in the VTA of MAM animals to levels observed in SAL rats, both when administered systemically and when directly infused into the ventral HPC. Moreover, HPC neurons in both SAL and MAM animals showed diminished cortical-evoked responses following α5GABA(A)R PAM treatment. In addition, the increased locomotor response to amphetamine observed in MAM rats was reduced following α5GABA(A)R treatment. This study supports a novel treatment of schizophrenia that targets abnormal HPC output, which in turn normalizes dopaminergic neuronal activity.