Increasing awareness of the importance of neurocognitive impairments in schizophrenia has fostered considerable interest in the prospects for cognitive rehabilitation. Nevertheless, optimism has outpaced progress. We first review recent literature on the central assumptions that underlie cognitive rehabilitation, including the hypothesis that cognitive deficits play a central role in social disability and other problems schizophrenia patients experience in daily living, and that these impairments must be rectified if we are to achieve effective rehabilitation. We next discuss developments in knowledge about the neurobiology of schizophrenia that bear on the potential for cognitive rehabilitation and the selection of appropriate targets for intervention. Third, we propose a new research strategy for investigating cognitive functioning in schizophrenia and for examining the relationship of cognitive deficits to role functioning in the community: examining patients who have good vocational outcomes in order to identify strengths or compensatory factors that compensate for core deficits. We present new data that lend support to our proposed approach. We next discuss putative limits to cognitive rehabilitation based on data documenting cognitive deficits in healthy siblings and parents. Finally, we briefly describe an interim rehabilitation strategy that minimizes the load on cognitive processes rather than attempting to improve cognitive functioning.