Recent theories propose that both GABA and glutamate signaling are compromised in patients with schizophrenia. These deficits can be observed in several brain regions including the prefrontal cortex (PFC), an area extensively linked to the cognitive dysfunction in this disease and notably affected by NMDA receptor antagonists such as phencyclidine (PCP). We have previously demonstrated that inhibition of the nitric oxide (NO) pathways in the brain, particularly in the PFC, prevents a wide range of PCP-induced behavioral deficits including disruption of prepulse inhibition (PPI). This study investigated the role of GABAB receptor signaling and NO in the effects of PCP on PPI. Mice received systemic or prefrontal injections of the GABAB receptor agonist baclofen (2.5–5 mg/kg and 1 mM) before PCP treatment (5 mg/kg) and were thereafter tested for PPI. GABA/NO interactions were studied by combining baclofen and the NO synthase inhibitor L-NAME (20 mg/kg) in subthreshold doses. The role of GABAB receptors for NO production in vivo was assessed using NO-sensors implanted into the rat PFC. PCP-induced PPI deficits were attenuated in an additive manner by systemic baclofen treatment, whereas prefrontal microinjections of baclofen completely blocked the effects of PCP, without affecting PPI per se. The combination of baclofen and L-NAME was more effective in preventing the effects of PCP than any compound by itself. Additionally, baclofen decreased NO release in the PFC in a dose-related manner. This study proposes a role for GABAB receptor signaling in the effects of PCP, with altered NO levels as a downstream consequence. Thus, prefrontal NO signaling mirrors an altered level of cortical inhibition that may be of importance for information processing deficits in schizophrenia.