The globus pallidus externus (GPe) is a central component of the basal ganglia circuit, receiving strong input from the indirect pathway and regulating a variety of functions, including locomotor output and habit formation. We recently showed that it also acts as a gatekeeper of cocaine-induced behavioral plasticity, as inhibition of parvalbumin-positive cells in the GPe (GPe PV ) prevents the development of cocaine-induced reward and sensitization. However, the molecular and circuit mechanisms underlying this function are unknown. Here we show that GPe PV cells control cocaine reward and sensitization by inhibiting GABAergic neurons in the substantia nigra pars reticulata (SNr GABA ), and ultimately, selectively modulating the activity of ventral tegmental area dopamine (VTA DA ) cells projecting to the lateral shell of the nucleus accumbens (NAcLat). A major input to GPe PV cells is the indirect pathway of the dorsomedial striatum (DMS D 2 ), which receives DAergic innervation from collaterals of VTA DA →NAcLat cells, making this a closed-loop circuit. Cocaine likely facilitates reward and sensitization not directly through actions in the GPe, but rather in the upstream DMS, where the cocaine-induced elevation of DA triggers a depression in DMS D 2 cell activity. This cocaine-induced elevation in DA levels can be blocked by inhibition of GPe PV cells, closing the loop. Interestingly, the level of GPe PV cell activity prior to cocaine administration is correlated with the extent of reward and sensitization that animals experience in response to future administration of cocaine, indicating that GPe PV cell activity is a key predictor of future behavioral responses to cocaine. Single nucleus RNA-sequencing of GPe cells indicated that genes encoding voltage-gated potassium channels KCNQ3 and KCNQ5 that control intrinsic cellular excitability are downregulated in GPe PV cells following a single cocaine exposure, contributing to the elevation in GPe PV cell excitability. Acutely activating channels containing KCNQ3 and/or KCNQ5 using the small molecule carnosic acid, a key psychoactive component of Salvia rosmarinus (rosemary) extract, reduced GPe PV cell excitability and also impaired cocaine reward, sensitization, and volitional cocaine intake, indicating its potential as a therapeutic to counteract psychostimulant use disorder. Our findings illuminate the molecular and circuit mechanisms by which the GPe orchestrates brain-wide changes in response to cocaine that are required for reward, sensitization, and self-administration behaviors.