DTNBP1 (dystrobrevin binding protein 1) is a leading candidate susceptibility gene in schizophrenia and is associated with working memory capacity in normal subjects. In schizophrenia, the encoded protein dystrobrevin-binding protein 1 (dysbindin-1) is often reduced in excitatory cortical limbic synapses. We found that reduced dysbindin-1 in mice yielded deficits in auditory-evoked response adaptation, prepulse inhibition of startle, and evoked γ-activity, similar to patterns in schizophrenia. In contrast to the role of dysbindin-1 in glutamatergic transmission, γ-band abnormalities in schizophrenia are most often attributed to disrupted inhibition and reductions in parvalbumin-positive interneuron (PV cell) activity. To determine the mechanism underlying electrophysiological deficits related to reduced dysbindin-1 and the potential role of PV cells, we examined PV cell immunoreactivity and measured changes in net circuit activity using voltage-sensitive dye imaging. The dominant circuit impact of reduced dysbindin-1 was impaired inhibition, and PV cell immunoreactivity was reduced. Thus, this model provides a link between a validated candidate gene and an auditory endophenotypes. Furthermore, these data implicate reduced fast-phasic inhibition as a common underlying mechanism of schizophrenia-associated intermediate phenotypes.