Whereas glutamate transporters in glial cells and postsynaptic neurons contribute significantly to re-uptake of synaptically released transmitter, the functional role of presynaptic glutamate transporters is poorly understood. Here, we used electrophysiological recording to examine the functional properties of a presynaptic glutamate transporter in rat retinal rod bipolar cells and its role in regulating glutamatergic synaptic transmission between rod bipolar cells and amacrine cells. Release of glutamate activated the presynaptic transporter with a time course that suggested a perisynaptic localization. The transporter was also activated by spillover of glutamate from neighboring rod bipolar cells. By recording from pairs of rod bipolar cells and AII amacrine cells, we demonstrate that activation of the transporter-associated anion current hyperpolarizes the presynaptic terminal and thereby inhibits synaptic transmission by suppressing transmitter release. Given the evidence for presynaptic glutamate transporters, similar mechanisms could be of general importance for transmission in the nervous system.