PROJECT SUMMARY (See instructions): Sensory perception originates from the integration of external stimuli with internal representations of the world, including prior expectations and behavioral states. In normal conditions, balancing new sensory evidence with internal models leads to flexible and accurate perception. Disrupted balance can lead to altered perception. The serotonin-2A receptor is associated with such perceptual alterations, both in its role in schizophrenia and in the action of psychedelic drugs. Experimental evidence presents an apparently contradictory picture of the effect of serotonergic modulation on neural circuits, increasing neuronal excitability while simultaneously reducing neural responses evoked by visual stimuli in behaving mice. Here, we will leverage a synergistic collaboration between theory and experiment to establish a new theoretical framework for dissecting the neural mechanisms of serotonergic modulation and thereby reconcile these puzzling observations. Our mechanistic theory is based on a biologically plausible model of cortical processing, informed by the observed neuromodulation effects. We will combine modeling and experiment to explain the circuit mechanism mediating the effect of serotonergic modulation on visual processing. Motivated by recent human fMRI studies showing altered functional connectivity in the psychedelic state and schizophrenia, we will elucidate how serotonergic activation regulates the whole-brain functional connectivity from wide field calcium imaging recordings. Our model predictions will be tested using optogenetic manipulations in a series of new electrophysiology and imaging experiments in behaving mice.