During the female reproductive cycle, hypothalamic oxytocin (OT) neurons undergo sharp changes in excitability. In lactating mammals, bursts of electrical activity of OT neurons result in the release of large amounts of OT in the bloodstream, which causes milk ejection. One hypothesis is that OT neurons regulate their own firing activity and that of nearby OT neurons by somatodendritic release of OT. In this study, we show that OT neuron activity strongly reduces inhibitory synaptic transmission to these neurons. This effect is blocked by antagonists of both adenosine and OT receptors and is mimicked by OT application. Inhibition of soluble N-ethylmaleimide-sensitive factor attachment protein receptor complex formation by tetanus toxin completely blocked the stimulation-induced reduction in inhibitory input, as did the calcium chelator BAPTA. During lactation, the readily releasable pool of secretory vesicles in OT cell bodies was doubled, and calcium currents were upregulated. This resulted in an increased inhibition of GABAergic synaptic transmission by somatodendritic release during lactation compared with the adult virgin stage. These results demonstrate that somatodendritic release is augmented during lactation, which is a novel form of plasticity to change the strength of synaptic transmission.