The dopamine-containing neurons of the midbrain have been implicated in a broad array of psychiatric disorders, ranging from schizophrenia to drug abuse and depression. However, studies seem to indicate that it is not the dopamine neurons themselves that are responsible for these pathological states, but instead the disorders appear to arise due to a disruption of dopamine neuron regulation by afferent inputs. Dopamine neurons recorded in vivo are known to exhibit multiple functional activity states, including baseline tonic firing and phasic activation in response to salient stimuli. Phasic burst firing is believed to be the behaviorally relevant “signal” of the dopamine neuron, whereas the level of tonic discharge represents the “gain” or the level of amplification of this signal. This tonic gain is differentially regulated by multiple brain regions, including the hippocampus, the amygdala, and the prefrontal cortex. Disruptions in these regions can interfere with the normal tonic/phasic balance within the dopamine system. Electrophysiological and behavioral studies in animal models of psychiatric disorders, as well as and human imaging studies in patients, suggest that this disruption may underlie the pathological state of the dopamine system that is present in psychiatric disorders. Specifically, we found that hippocampal hyperactivity in schizophrenia may be responsible for the hyperdopaminergic state of psychosis, whereas prefrontal cortical-amygdala overdrive diminishes reward-related dopamine neuron activity leading to anhedonia in depression. This type of information can contribute both to a better understanding of the pathophysiology of major psychiatric disorders, as well as glean insights into novel avenues of treatment and potentially in preventing the emergence of these disorders.