I have a 120 Hz monitor, but in settings I can't go beyond 60 Hz.

I've found a workaround for my problem: when playing in windowed mode, I get the desktop refresh rate I want.

I found out by enabling vsync and using Fraps at the same time: in fullscreen mode it was capped at 60 fps, while in windowed it never went beyond 120 fps.

It's not ideal since I get the title bar the top of the screen, but it's better than capping the framerate at 60.

Enter these settings in the Psychonauts game profile if you have Nvidia GPU:

NVIDIA 3D Settings

Anisotropic filtering: 16x
Preferred refresh rate (BenQ XL2420T): Highest available (gives 120hz)
Texture filtering - Anisotropic sample optimisations: Off
Texture filtering - Negative LOD bias: Clamp
Vertical sync: Adaptive