Functional activity of N-methyl-d-aspartate (NMDA) receptors requires both glutamate binding and the binding of an endogenous coagonist that has been presumed to be glycine, although d-serine is a more potent agonist. Localizations of d-serine and it biosynthetic enzyme serine racemase approximate the distribution of NMDA receptors more closely than glycine. We now show that selective degradation of d-serine with d-amino acid oxidase greatly attenuates NMDA receptor-mediated neurotransmission as assessed by using whole-cell patch–clamp recordings or indirectly by using biochemical assays of the sequelae of NMDA receptor-mediated calcium flux. The inhibitory effects of the enzyme are fully reversed by exogenously applied d-serine, which by itself did not potentiate NMDA receptor-mediated synaptic responses. Thus, d-serine is an endogenous modulator of the glycine site of NMDA receptors and fully occupies this site at some functional synapses.