The cognitive deficits seen in schizophrenia patients are likely related to abnormal glutamatergic and cholinergic neurotransmission in the prefrontal cortex. We hypothesized that these impairments may be secondary to increased levels of the astrocyte-derived metabolite kynurenic acid (KYNA), which inhibits alpha7 nicotinic acetylcholine receptors (alpha7AChR) and may thereby reduce glutamate release. Using in vivo microdialysis in unanesthetized rats, we show here that nanomolar concentrations of KYNA, infused directly or produced in situ from its bioprecursor kynurenine, significantly decrease extracellular glutamate levels in the prefrontal cortex. This effect was prevented by the systemic administration of galantamine (3 mg/kg) but not by donepezil (2 mg/kg), indicating that KYNA blocks the allosteric potentiating site of the alpha7AChR, which recognizes galantamine but not donepezil as an agonist. In separate rats, reduction of prefrontal KYNA formation by (S)-4-ethylsulfonyl benzoylalanine, a specific inhibitor of KYNA synthesis, caused a significant elevation in extracellular glutamate levels. Jointly, our results demonstrate that fluctuations in endogenous KYNA formation bidirectionally influence cortical glutamate concentrations. These findings suggest that selective attenuation of cerebral KYNA production, by increasing glutamatergic tone, might improve cognitive function in individuals with schizophrenia.