Women with schizophrenia express affective disturbances disproportionately more than men. Brain regions implicated in the affective arousal circuitry also regulate the hypothalamic-pituitary-adrenal and -gonadal systems, which are dysfunctional in schizophrenia. This review will argue that understanding the etiology of affective arousal deficits in schizophrenia is intimately connected with characterizing the role of neuroendocrine dysfunction and sex effects in schizophrenia. Further, the etiology of these neuroendocrine deficits begins during fetal development, during a period of time that coincides with the sexual differentiation of the brain and the vulnerability for schizophrenia. Studying the links between deficits in neuroendocrine systems and the affective arousal system in schizophrenia will provide clues to understanding the development of sex differences in schizophrenia and thereby its etiology.