Schizophrenia patients exhibit dysfunctional gamma oscillations in response to simple auditory stimuli or more complex cognitive tasks, a phenomenon explained by reduced NMDA transmission within inhibitory/excitatory cortical networks. Indeed, a simple steady-state auditory click stimulation paradigm at gamma frequency (~40 Hz) has been reproducibly shown to reduce entrainment as measured by electroencephalography (EEG) in patients. However, some investigators have reported increased phase locking factor (PLF) and power in response to 40 Hz auditory stimulus in patients. Interestingly, preclinical literature also reflects this contradiction. We investigated whether a graded deficiency in NMDA transmission can account for such disparate findings by administering subanesthetic ketamine (1-30 mg/kg, i.v.) or vehicle to conscious rats (n=12) and testing their EEG entrainment to 40 Hz click stimuli at various time points (~7-62 min after treatment). In separate cohorts, we examined in vivo NMDA channel occupancy and tissue exposure to contextualize ketamine effects. We report a robust inverse relationship between PLF and NMDA occupancy 7 min after dosing. Moreover, ketamine could produce inhibition or disinhibition of the 40 Hz response in a temporally dynamic manner. These results provide for the first time empirical data to understand how cortical NMDA transmission deficit may lead to opposite modulation of the auditory steady-state response (ASSR). Importantly, our findings posit that 40 Hz ASSR is a pharmacodynamic biomarker for cortical NMDA function that is also robustly translatable. Besides schizophrenia, such a functional biomarker may be of value to neuropsychiatric disorders like bipolar and autism spectrum where 40 Hz ASSR deficits have been documented.