Background and Aim: Potassium-chloride cotransporter type 2 (KCC2) plays a pivotal role in regulating intracellular chloride concentration and the inhibitory efficacy of GABAergic neurotransmission. Precise modulation of KCC2 expression is essential for maintaining the excitatory/inhibitory (E/I) balance within the nervous system. This review investigates the involvement of KCC2 dysfunction in the etiology and pathophysiology of diverse psychiatric disorders. Materials and Methods: A literature review was conducted using PubMed, ScienceDirect, and Scopus. The search was performed using English keywords and with a specific focus on “schizophrenia,” “autism spectrum disorder,” “bipolar disorder,” “attention-deficit/hyperactivity disorder (ADHD),” “eating disorders,” “depression,” “anxiety,” and “post-traumatic stress disorder (PTSD)”. Experimental, clinical, and post-mortem studies published between 2000 and 2025 were considered. Results: Downregulated expression or impaired phosphorylation of KCC2 leads to pathological intracellular chloride accumulation and attenuated GABAergic inhibition. In schizophrenia and autism spectrum disorder, KCC2 dysfunction is associated with cognitive deficits and neural network abnormalities. In depression and bipolar disorder, KCC2 dysregulation is linked to compromised stress resilience. Evidence also supports its involvement in anxiety, PTSD, and ADHD, while recent research suggests a role in eating disorders. Conclusion: Normal KCC2 function is fundamental to mental health. As KCC2 deficiencies are a shared feature across psychiatric conditions, targeting KCC2 regulatory pathways and enhancing its function may represent a promising therapeutic strategy for alleviating symptoms of these disorders.