Schizophrenia patients exhibit increased hippocampal activity that is correlated with positive symptoms. Although the cause of this hippocampal hyperactivity has not been demonstrated, it likely involves a decrease in GABAergic signaling. Thus, we posit that restoring GABAergic function may provide a novel therapeutic approach for the treatment of schizophrenia. It has been demonstrated that transplanted GABAergic precursor cells from the medial ganglionic eminence (MGE) can migrate and differentiate into mature interneurons. Here, we demonstrate that ventral hippocampal MGE transplants can restore hippocampal function and normalize downstream dopamine neuron activity in a rodent model of schizophrenia. Furthermore, MGE transplants also reverse the hyper-responsive locomotor response to amphetamine. Taken together, these data demonstrate that restoring interneuron function reverses neurophysiological and behavioral deficits in a rodent model of schizophrenia and moreover, demonstrate the feasibility of a neuronal transplant procedure as a potential novel therapeutic approach for the treatment of schizophrenia.