Neurotransmission in dentate gyrus (DG) is critical for spatial coding, learning memory, and emotion processing. Although DG dysfunction is implicated in psychiatric disorders, including schizophrenia, underlying pathological mechanisms remain unclear. Here we report that transmembrane protein 108 (Tmem108), a novel schizophrenia susceptibility gene, is highly enriched in DG granule neurons and its expression increased at the postnatal period critical for DG development. Tmem108 is specifically expressed in the nervous system and enriched in the postsynaptic density fraction. Tmem108-deficient neurons form fewer and smaller spines, suggesting that Tmem108 is required for spine formation and maturation. In agreement, excitatory postsynaptic currents of DG granule neurons were decreased in Tmem108 mutant mice, indicating a hypofunction of glutamatergic activity. Further cell biological studies indicate that Tmem108 is necessary for surface expression of AMPA receptors. Tmem108-deficient mice display compromised sensorimotor gating and cognitive function. Together, these observations indicate that Tmem108 plays a critical role in regulating spine development and excitatory transmission in DG granule neurons. When Tmem108 is mutated, mice displayed excitatory/inhibitory imbalance and behavioral deficits relevant to schizophrenia, revealing potential pathophysiological mechanisms of schizophrenia.