Deficient inhibitory processing of the P50 auditory evoked potential is a measurable marker observed in schizophrenia. Several lines of evidence suggest that α7 nicotinic receptors (α7 nAChRs) play a critical role in P50 auditory sensory gating in the human brain. Similar to schizophrenic patients, DBA/2 mice spontaneously exhibit a deficit in inhibitory processing of the P20-N40 auditory evoked potential, which is a rodent analogue of the human P50 auditory evoked potential. Agonists at α7 nAChRs improve deficient inhibitory processing of the P20-N40 auditory gating potential in DBA/2 mice. In this article, we review the role of α7 nAChRs in the pathophysiology of schizophrenia, and α7 nAChR agonists and indirect agonists (5-hydroxytryptamine-3 (5-HT3) receptor antagonists, positive allosteric modulators (galantamine, 5-hydroxyindole, PNU-120596), FK960, FR236924) at α7 nAChRs as potential therapeutic drugs for the treatment of schizophrenia. In addition, we also discuss the role of kynurenic acid as an endogenous antagonist of α7 nAChRs in brain.