The pathophysiology of psychiatric disorders such as schizophrenia is not fully understood due, in part, to the shortcomings of available neurophysiological techniques. Previous studies have shown that patients with schizophrenia have deficits in dorsolateral prefrontal cortex (DLPFC). In this regard, two major deficits were observed:​ impairments in gamma-aminobutyric-acid (GABA) neurotransmission and cortical gamma (30-50Hz) oscillations. Previous in vitro and animal studies have linked the modulation of gamma oscillations with GABAB receptor mediated inhibition. Objectives:​ The first objective was to examine the effect of GABAB receptor mediated inhibition on cortical oscillations in the motor cortex and DLPFC in healthy subjects by using the novel technique of transcranial magnetic stimulation (TMS) combined with electroencephalography (EEG) and through the TMS paradigm long interval cortical inhibition (LICI), which has been associated with GABAB receptor mediated inhibition. Second, to evaluate the psychometric properties of this neurophysiological paradigm, the validity and reliability of EEG indices of LICI were examined. Finally, the effect of LICI on cortical oscillations was examined in the DLPFC and motor cortex of patients with schizophrenia compared to healthy subjects and patients with bipolar disorder. Hypothesis:​ It was predicted that EEG measures of LICI would show validity and reliability, and it was hypothesized that patients with schizophrenia would show deficits in inhibition of gamma oscillations in DLPFC compared to healthy subjects and patients with bipolar disorder. Results:​ The first experiment showed that in healthy subjects LICI inhibited gamma oscillations in the DLPFC but not in the motor cortex. The second experiment demonstrated the validity and reliability of EEG indices of LICI were confirmed in healthy subjects. Finally, patients with schizophrenia had a selective deficit in inhibition of gamma oscillations in the DLPFC which appeared to be independent of illness duration or antipsychotic medication, and it was not observed in bipolar disorder. Conclusions:​ TMS combined with EEG allows for measuring modulatory effect of LICI on cortical oscillations. Inhibition of gamma oscillations in the DLPFC may be an essential neurophysiological process that may be impaired in schizophrenia. Future studies should ascertain the potential of gamma inhibition deficit as a biological marker for this illness.