Evidence of dysfunctional visual processing in schizophrenia patients has been noted in all stages of the visual processing pathway. The iterative nature of vision- with hierarchical feedforward signals, modulating feedback signals, and horizontal intracortical connections- makes it difficult to pinpoint exact loci that are driving these deficits. This dissertation uses several contextual modulation paradigms in an effort to isolate and explain the nature of disruptions in iterative visual processing in schizophrenia. Chapter 1 provides an overview of visual processing dysfunctions in schizophrenia, and examines a variety of mechanisms that may play a role. These include neurotransmitters, magnocellular versus parvocellular processing streams, abnormal local connections, and abnormal long-range feedback connections. These are presented in the context of several theoretical perspectives of visual neuroscience. Chapter 2 provides functional magnetic resonance imaging data from a fractured ambiguous object task that probes the role of high-level qualities in primary visual cortex activation and interregional connectivity, and how these may be disrupted in psychosis. Chapter 3 introduces a computational model that attempts to fit parameters to psychophysical data to isolate disrupted mechanisms in schizophrenia. This model focuses on the role of gain control and segmentation of center and surround stimuli in a tilt illusion paradigm. Chapter 4 presents previous work, examining the modulatory effect of the NMDA receptor agonist d-cycoserine on conditioned fear generalization. This work was done in healthy controls as a step in expanding our knowledge of the function of d-cycloserine in increasing specificity and efficacy in the fear learning process.