Brain-derived neurotrophic factor (BDNF) and STriatal-Enriched protein tyrosine Phosphatase 61 (STEP61) have opposing functions in the brain, with BDNF supporting and STEP61 opposing synaptic strengthening. BDNF and STEP61 also exhibit an inverse pattern of expression in a number of brain disorders, including schizophrenia (SZ). NMDAR antagonists such as phencyclidine (PCP) elicit SZ-like symptoms in rodent models and unaffected individuals, and exacerbate psychotic episodes in SZ. Here we characterize the regulation of BDNF expression by STEP61, utilizing PCP-treated cortical culture and PCP-treated mice. PCP-treated cortical neurons showed both an increase in STEP61 levels and a decrease in BDNF expression. The reduction in BDNF expression was prevented by STEP61 knockdown or use of the STEP inhibitor, TC-2153. The PCP-induced increase in STEP61 expression was associated with the inhibition of CREB-dependent BDNF transcription. Similarly, both genetic and pharmacologic inhibition of STEP prevented the PCP-induced reduction in BDNF expression in vivo and normalized PCP-induced hyperlocomotion and cognitive deficits. These results suggest a mechanism by which STEP61 regulates BDNF expression, with implications for cognitive functioning in CNS disorders.