Psychosis has been traditionally linked to the overactivity of the neurotransmitter dopamine. In particular to its effect in the mesolimbic pathway. The two major sources of evidence given to support this theory are that dopamine receptor D2 blocking drugs (i.e., antipsychotics) tend to reduce the intensity of psychotic symptoms, and that drugs that accentuate dopamine release, or inhibit its reuptake (such as amphetamines and cocaine) can trigger psychosis in some people (see stimulant psychosis).

NMDA receptor dysfunction has been proposed as a mechanism in psychosis. This theory is reinforced by the fact that dissociative NMDA receptor antagonists such as ketamine, PCP and dextromethorphan (at large overdoses) induce a psychotic state. The symptoms of dissociative intoxication are also considered to mirror the symptoms of schizophrenia, including negative symptoms. NMDA receptor antagonism, in addition to producing symptoms reminiscent of psychosis, mimics the neurophysiological aspects, such as reduction in the amplitude of P50, P300, and MMN evoked potentials. Hierarchical Bayesian neurocomputational models of sensory feedback, in agreement with neuroimaging literature, link NMDA receptor hypofunction to delusional or hallucinatory symptoms via proposing a failure of NMDA mediated top down predictions to adequately cancel out enhanced bottom up AMPA mediated predictions errors. Excessive prediction errors in response to stimuli that would normally not produce such a response is thought to root from conferring excessive salience to otherwise mundane events. Dysfunction higher up in the hierarchy, where representation is more abstract, could result in delusions. The common finding of reduced GAD67 expression in psychotic disorders may explain enhanced AMPA mediated signaling, caused by reduced GABAergic inhibition.

The connection between dopamine and psychosis is generally believed to be complex. While dopamine receptor D2 suppresses adenylate cyclase activity, the D1 receptor increases it. If D2-blocking drugs are administered, the blocked dopamine spills over to the D1 receptors. The increased adenylate cyclase activity affects genetic expression in the nerve cell, which takes time. Hence antipsychotic drugs take a week or two to reduce the symptoms of psychosis. Moreover, newer and equally effective antipsychotic drugs actually block slightly less dopamine in the brain than older drugs whilst also blocking 5-HT2A receptors, suggesting the 'dopamine hypothesis' may be oversimplified. Soyka and colleagues found no evidence of dopaminergic dysfunction in people with alcohol-induced psychosis and Zoldan et al. reported moderately successful use of ondansetron, a 5-HT3 receptor antagonist, in the treatment of levodopa psychosis in Parkinson's disease patients.

A review found an association between a first-episode of psychosis and prediabetes.

Prolonged or high dose use of psychostimulants can alter normal functioning, making it similar to the manic phase of bipolar disorder. NMDA antagonists replicate some of the so-called "negative" symptoms like thought disorder in subanesthetic doses (doses insufficient to induce anesthesia), and catatonia in high doses. Psychostimulants, especially in one already prone to psychotic thinking, can cause some "positive" symptoms, such as delusional beliefs, particularly those persecutory in nature.