This dissertation investigates the neural mechanisms underlying context processing in the mouse visual system, focusing on the role of feedback connections, local microcircuits, and neuromodulation. The predictive processing framework is one popular theory proposed to explain context processing. It posits that the brain generates and updates an internal model of the world based on context, comparing incoming sensory information with predictions generated by its internal model. When this model does not match with incoming information, a prediction error, or deviance detection (DD) signal, is generated. Using a combination of electrophysiology, two-photon calcium imaging, and optogenetics, we demonstrate that feedback from the anterior cingulate area (ACa) to the primary visual cortex (V1) is crucial for DD responses and predictive suppression. Inhibiting ACa inputs eliminates DD in V1, while frequency-specific stimulation differentially modulates the activity of pyramidal cells and interneurons, suggesting a disinhibitory motif driven by vasoactive intestinal peptide-expressing (VIP) and somatostatin (SST) interneurons. Employing a cascade oddball paradigm, we disentangle predictive suppression from stimulus-specific adaptation, revealing predictive suppression as an independent mechanism that is disrupted after ACa inhibition, similar to DD. Furthermore, we show that serotonin 2A receptors, the main target of psychedelic drugs, disrupt top-down modulation of ACa to V1, affecting DD responses. This finding provides insights into altered states of consciousness and their relationship to predictive processing. Our findings support the predictive processing framework, demonstrating the presence of a distributed neurocircuit involving different regions, local cell populations, neuromodulators, and oscillatory frequencies that carries and processes stimuli against an internal model of the world, generating distinct responses to deviant stimuli. The understanding of the circuit mechanisms involved in context processing may advance our understanding of perception both in health and disease, and ultimately describe how the brain actively constructs its experience of the world.