Abnormalities of prefrontal cortical function are prominent features of schizophrenia and have been associated with genetic risk, suggesting that susceptibility genes for schizophrenia may impact on the molecular mechanisms of prefrontal function. A potential susceptibility mechanism involves regulation of prefrontal dopamine, which modulates the response of prefrontal neurons during working memory. We examined the relationship of a common functional polymorphism (Val^108/158 Met) in the catechol-O-methyltransferase (COMT) gene, which accounts for a 4-fold variation in enzyme activity and dopamine catabolism, with both prefrontally mediated cognition and prefrontal cortical physiology. In 175 patients with schizophrenia, 219 unaffected siblings, and 55 controls, COMT genotype was related in allele dosage fashion to performance on the Wisconsin Card Sorting Test of executive cognition and explained 4% of variance (P = 0.001) in frequency of perseverative errors. Consistent with other evidence that dopamine enhances prefrontal neuronal function, the load of the low-activity Met allele predicted enhanced cognitive performance. We then examined the effect of COMT genotype on prefrontal physiology during a working memory task in three separate subgroups (n = 11–16) assayed with functional MRI. Met allele load consistently predicted a more efficient physiological response in prefrontal cortex. Finally, in a family-based association analysis of 104 trios, we found a significant increase in transmission of the Val allele to the schizophrenic offspring. These data suggest that the COMT Val allele, because it increases prefrontal dopamine catabolism, impairs prefrontal cognition and physiology, and by this mechanism slightly increases risk for schizophrenia.