Arousal is an important defense against hypoxia during sleep. Rat pups exhibit progressive arousal impairment (habituation) with multiple hypoxia exposures. The mechanisms are unknown. The medullary raphe (MR) is involved in autonomic functions, including sleep, and receives abundant GABAergic inputs. We hypothesized that inhibiting MR neurons with muscimol, a GABA(A) receptor agonist, or preventing GABA reuptake with nipecotic acid, would impair arousal and enhance arousal habituation and that blocking GABA(A) receptors with bicuculline would enhance arousal and attenuate habituation. Postnatal day 15 (P15) to P25 rat pups were briefly anesthetized, and microinjections with aCSF, muscimol, bicuculline, or nipecotic acid were made into the MR. After a ∼30-min recovery, pups were exposed to four 3-min episodes of hypoxia separated by 6 min of normoxia. The time to arousal from the onset of hypoxia (latency) was determined for each trial. Latency progressively increased across trials (habituation) in all groups. The overall latency was greater after muscimol and nipecotic acid compared with aCSF, bicuculline, or noninjected controls. Arousal habituation was reduced after bicuculline compared with aCSF, muscimol, nipecotic acid, or noninjected pups. Increases in latency were mirrored by decreases in chamber [O2] and oxyhemoglobin saturation. Heart rate increased during hypoxia and was greatest in muscimol-injected pups. Our results indicate that the MR plays an important, not previously described, role in arousal and arousal habituation during hypoxia and that these phenomena are modulated by GABAergic mechanisms. Arousal habituation may contribute to sudden infant death syndrome, which is associated with MR serotonergic and GABAergic receptor dysfunction.