The dynorphin/κ-opioid receptor system has been implicated in the pathogenesis and pathophysiology of several psychiatric disorders. In the present review, we present evidence indicating a key role for this system in modulating neurotransmission in brain circuits that subserve mood, motivation, and cognitive function. We overview the pharmacology, signaling, post-translational, post-transcriptional, transcriptional, epigenetic and cis regulation of the dynorphin/κ-opioid receptor system, and critically review functional neuroanatomical, neurochemical, and pharmacological evidence, suggesting that alterations in this system may contribute to affective disorders, drug addiction, and schizophrenia. We also overview the dynorphin/κ-opioid receptor system in the genetics of psychiatric disorders and discuss implications of the reviewed material for therapeutics development.