Schizophrenia is associated with core deficits in cognitive abilities and impaired functioning of the newly evolved prefrontal association cortex (PFC). In particular, neuropathological studies of schizophrenia have found selective atrophy of the pyramidal cell microcircuits in deep layer III of the dorsolateral PFC (dlPFC) and compensatory weakening of related GABAergic interneurons. Studies in monkeys have shown that recurrent excitation in these layer III microcircuits generates the precisely patterned, persistent firing needed for working memory and abstract thought. Importantly, excitatory synapses on layer III spines are uniquely regulated at the molecular level in ways that may render them particularly vulnerable to genetic and/or environmental insults. Glutamate actions are remarkably dependent on cholinergic stimulation, and there are inherent mechanisms to rapidly weaken connectivity, e.g. during stress. In particular, feedforward cyclic adenosine monophosphate (cAMP)-calcium signaling rapidly weakens network connectivity and neuronal firing by opening nearby potassium channels. Many mechanisms that regulate this process are altered in schizophrenia and/or associated with genetic insults. Current data suggest that there are “dual hits” to layer III dlPFC circuits: initial insults to connectivity during the perinatal period due to genetic errors and/or inflammatory insults that predispose the cortex to atrophy, followed by a second wave of cortical loss during adolescence, e.g. driven by stress, at the descent into illness. The unique molecular regulation of layer III circuits may provide a nexus where inflammation disinhibits the neuronal response to stress. Understanding these mechanisms may help to illuminate dlPFC susceptibility in schizophrenia and provide insights for novel therapeutic targets.