It is being increasingly recognised that the future of drug development will need to be based on a comprehensive understanding of disease pathophysiology. Thus this review focuses on a growing body of information suggesting that decreases in muscarinic receptors are involved in the pathophysiology of schizophrenia. This review will address evidence to support the hypothesis that drugs that can increase the activity of muscarinic receptors have the potential to have antipsychotic affects and improve cognitive deficits in subjects with the schizophrenia. How drugs directed towards allosteric binding sites are overcoming the problem of using orthosteric receptor agonists in the treatment of disease, which cause agonist-induced receptor down-regulation and subsequent drug desensitisation, will be discussed. The discovery of allosteric binding sites on muscarinic receptors will be reviewed as will the ability of different classes of drugs to stimulate each muscarinic receptor without causing agonist-induced receptor down-regulation. Finally, progress in developing allosteric muscarinic receptor agonists and modulators will be discussed and it will be argued the muscarinic M1 receptor allosteric agonists and/or modulators may have the potential to improve the cognitive deficits associated with schizophrenia whilst muscarinic M4 receptor modulates may have antipsychotic effects.