The identity of the specific molecules required for the process of retinal circuitry formation is largely unknown. Here we report a newly identified zebrafish mutant in which the absence of the atypical cadherin, Celsr3, leads to a specific defect in the development of GABAergic signaling in the inner retina. This mutant lacks an optokinetic response (OKR), the ability to visually track rotating illuminated stripes, and develops a super-normal b-wave in the electroretinogram (ERG). We find that celsr3 mRNA is abundant in the amacrine and ganglion cells of the retina, however its loss does not affect synaptic lamination within the inner plexiform layer (IPL) or amacrine cell number. We localize the ERG defect pharmacologically to a late-stage disruption in GABAergic modulation of ON-bipolar cell pathway and find that the DNQX-sensitive fast b1 component of the ERG is specifically affected in this mutant. Consistently, we find an increase in GABA receptors on mutant ON-bipolar terminals, providing a direct link between the observed physiological changes and alterations in GABA signaling components. Finally, using blastula transplantation, we show that the lack of an OKR is due, at least partially, to Celsr3-mediated defects within the brain. These findings support the previously postulated inner retina origin for the b1 component and reveal a new role for Celsr3 in the normal development of ON visual pathway circuitry in the inner retina.