Serotonergic neuromodulation is a crucial factor in regulating several aspects of brain function, from mood disorders to appetite, reward and motivation, and in maintaining balance of sensory perception. However, the network mechanisms by which it modulates brain dynamics are elusive. In this project, we will develop and experimentally test a mechanistic theory explaining the observed modulations of cortical activity induced by the serotonergic activation via hallucinogenic agonists. Existing evidence paints an apparently contradictory picture, where a hallucinogenic HT2AR agonist increases pyramidal cells’ excitability and glutamatergic levels while, at the same time, leading to a reduction in visually evoked responses. Our central hypothesis is that these puzzling effects of serotonergic activation are due to gain modulation induced in visual cortex (V1) circuits. The proposed mechanism is counterintuitive as it leads to decreased evoked responses by way of increasing pyramidal cell excitability, due to a counterintuitive effect produced by strong recurrent dynamics in cortical circuits; it also leads to increased variability of network activity, and changes in brain-wide connectivity. By expanding the repertoire of cortical states, it may explain the onset of hallucinations driven by serotonergic activation. We will show how this mechanistic theory can reconcile the tension in the literature and we will design and perform new experiments to test the model predictions in behaving animals. Together, this project provides a link between cellular-level neuromodulation and the impact on network dynamics and, ultimately, sensory perception.