Most tissue samples are composed of different cell types. Differential expression analysis without accounting for cell type composition cannot separate the changes due to cell type composition or cell type-specific ex- pression. We propose a new framework to address these limitations: Cell Type Aware analysis of RNA-seq (CARseq). After evaluating its performance in simulations, we apply CARseq to compare gene expression of schizophrenia/autism subjects versus controls. Our results show that these two neurodevelopmental disorders differ from each other in terms of cell type composition changes and differential expression associated with different types of neurotransmitter receptors. We also discover overlap- ping signals of differential expression in microglia, supporting the two diseases' similarity through immune regulation.