Although neuromodulation of synapses is extensively documented, its consequences in the context of network oscillations are not well known. We examine the modulation of synaptic strength and short-term dynamics in the crab pyloric network by the neuropeptide proctolin. Pyloric oscillations are driven by a pacemaker group which receives feedback through the inhibitory synapse from the lateral pyloric (LP) to pyloric dilator (PD) neurons. We show that proctolin modulates the spike-mediated and graded components of the LP to PD synapse. Proctolin enhances the graded component and unmasks a surprising heterogeneity in its dynamics where there is depression or facilitation depending on the amplitude of the voltage waveform of the presynaptic LP neuron. The spike-mediated component is influenced by the baseline membrane potential and is also enhanced by proctolin at all baseline potentials. In addition to direct modulation of this synapse, proctolin also changes the shape and amplitude of the presynaptic voltage waveform which additionally enhances synaptic output during ongoing activity. During ongoing oscillations, proctolin reduces the variability of cycle period but only when the LP to PD synapse is functionally intact. Using the dynamic clamp technique we find that the reduction in variability is a direct consequence of modulation of the LP to PD synapse. These results demonstrate that neuromodulation of synapses involves complex and interacting influences that target different synaptic components and dynamics as well as the presynaptic voltage waveform. At the network level, modulation of feedback inhibition can result in reduction of variability and enhancement of stable oscillatory output.