NMDA receptor (NMDAR)-induced excitotoxicity is thought to contribute to the cell death associated with certain neurodegenerative diseases, stroke, epilepsy, and traumatic brain injury. Targeting NMDARs therapeutically is complicated by the fact that cell signaling downstream of their activation can promote cell survival and plasticity as well as excitotoxicity. However, research over the past decade has suggested that overactivation of NMDARs located outside of the synapse plays a major role in NMDAR toxicity, whereas physiological activation of those inside the synapse can contribute to cell survival, raising the possibility of therapeutic intervention based on NMDAR subcellular localization. Here, we review the evidence both supporting and refuting this localization hypothesis of NMDAR function and discuss the role of NMDAR localization in disorders of the nervous system. Preventing excessive extrasynaptic NMDAR activation may provide therapeutic benefit, particularly in Alzheimer disease and Huntington disease.