The predictive coding theory of psychosis posits that individuals with schizophrenia demonstrate abnormalities in the strength of top-down modulation (based on prior experience) of sensory signals. Evidence suggests that difficulty perceiving depth inversion illusions (DIIs) (i.e., more accurate perception of stimuli under conditions in which control subjects perceive these illusions) may reflect this abnormality in people with schizophrenia. This review synthesizes findings from all studies that have investigated DII perception in schizophrenia, high-risk syndromes, and conditions associated with risk for psychosis outside of a psychotic disorder such as those involving cannabis use, alcohol intoxication and withdrawal, and sleep deprivation. Cognitive and biological mechanisms contributing to DII resistance, and strengths and confounds of using the DII task as a measure of predictive coding are also discussed. The available evidence indicates that psychosis is associated with resistance to DIIs, whereas schizophrenia in the absence of active psychosis is less strongly associated with this effect. This may be due to psychosis-related deficiencies in top-down signaling and a compensatory overreliance on bottom-up signaling. Overall, the evidence reviewed suggests that the DII task is a sensitive measure of predictive coding in schizophrenia that could be used as a visual biomarker to predict risk and impending changes in clinical state within the disorder. Additional studies that measure changes longitudinally are necessary to further explore the possibility of using the DII task as a visual biomarker for psychosis in clinical settings.