Both environmental and genetic factors contribute to schizophrenia; however, the exact etiology of this disorder is not known. Animal models are utilized to better understand the mechanisms associated with neuropsychiatric diseases, including schizophrenia. One of these involves gestational administration of methylazoxymethanol acetate (MAM) to induce a developmental disruption, which in turn produces a schizophrenia-like phenotype in post-pubertal rats. The mechanisms by which MAM produces this phenotype are not clear; however, we now demonstrate that MAM induces differential DNA methylation, which may be heritable. Here we demonstrate that a subset of both second (F2) and third (F3) filial generations of MAM-treated rats displays a schizophrenia-like phenotype and hypermethylation of the transcription factor, Sp5. Specifically, ventral tegmental area of dopamine neuron activity was examined using electrophysiology as a correlate for the dopamine hyperfunction thought to underlie psychosis in patients. Interestingly, only a subset of F2 and F3 MAM rats exhibited increases in dopamine neuron population activity, indicating that this may be a unique model with a susceptibility to develop a schizophrenia-like phenotype. An increase in dopamine system function in rodent models has been previously associated with decreases in hippocampal GABAergic transmission. In line with these observations, we found a significant correlation between hippocampal parvalbumin expression and dopamine neuron activity in F2 rats. These data therefore provide evidence that offspring born from MAM-treated rats possess a susceptibility to develop aspects of a schizophrenia-like phenotype and may provide a useful tool to investigate gene-environment interactions.