The septo-hippocampal GABAergic pathway connects inhibitory neurons in the medial septum with hippocampal interneurons. Phasic release of GABA from septo-hippocampal terminals is thought to play an important role in shaping hippocampal network activity during behavior. Here, we found that GABA release from septo-hippocampal terminals is under negative feedback from the hippocampal local inhibitory network. We found that the strength of septo-hippocampal GABAergic inhibition is constrained by presynaptic GABAb receptors that are activated by ambient GABA during states of increased hippocampal network activity.