Synaptic plasticity during critical periods of development requires intact inhibitory circuitry. We report that subplate neurons are needed both for maturation of inhibition and for the proper sign of ocular dominance (OD) plasticity. Removal of subplate neurons prevents the developmental upregulation of genes involved in mature, fast GABAergic transmission in cortical layer 4, including GABA receptor subunits and KCC2, and thus prevents the switch to a hyperpolarizing effect of GABA. To understand the implications of these changes, a realistic circuit model was formulated. Simulations predicted that without subplate neurons, monocular deprivation (MD) paradoxically favors LGN axons representing the deprived (less active) eye, exactly what was then observed experimentally. Simulations also account for published results showing that OD plasticity requires mature inhibition. Thus, subplate neurons regulate molecular machinery required to establish an adult balance of excitation and inhibition in layer 4, and thereby influence the outcome of OD plasticity.