This is a double-blind, placebo controlled clinical trial in schizophrenia patients. Outcome measures include biomarkers and clinical symptoms and functions, and smoking cessation. Neurobiological and cognitive markers will be measured for short term (2 weeks) and longer-term (8 weeks). Current schizophrenia treatments are mostly ineffective against primary negative symptoms and the cognitive and information processing deficits associated with the disorder. Previous research has identified several neurophysiological deficits in schizophrenia that are enduring, frequently occurring before psychosis, and mark the disease liability. These schizophrenia endophenotypes provide important targets for novel treatment development as they represent the core deficits of the disorder. We hypothesize that sustained nicotinic and dopaminergic modulation by varenicline may ameliorate the core neurobiological deficits seen in schizophrenia patients, which would lead to subsequent clinical improvement. Neurobiological and neurocognitive markers and clinical and functional measures will be obtained to determine 1) short-term effect of varenicline on biomarkers; and 2) longer-term improvement in clinical symptoms, smoking cessation, and functions; and how biomarker changes predict these improvements.