Schizophrenia and mania have a number of symptoms and epidemiological characteristics in common, and both respond to dopamine blockade. Family, twin and molecular genetic studies suggest that the reason for these similarities may be that the two conditions share certain susceptibility genes. On the other hand, individuals with schizophrenia have more obvious brain structural and neuropsychological abnormalities than those with bipolar disorder; and pre-schizophrenic children are characterised by cognitive and neuromotor impairments, which are not shared by children who later develop bipolar disorder. Furthermore, the risk-increasing effect of obstetric complications has been demonstrated for schizophrenia but not for bipolar disorder. Perinatal complications such as hypoxia are known to result in smaller volume of the amygdala and hippocampus, which have been frequently reported to be reduced in schizophrenia; familial predisposition to schizophrenia is also associated with decreased volume of these structures. We suggest a model to explain the similarities and differences between the disorders and propose that, on a background of shared genetic predisposition to psychosis, schizophrenia, but not bipolar disorder, is subject to additional genes or early insults, which impair neurodevelopment, especially of the medial temporal lobe.