Fast-spiking parvalbumin-expressing interneurons (PVIs) and granule cells (GCs) of the dentate gyrus receive layer-specific dendritic inhibition. Its impact on PVI and GC excitability is, however, unknown. By applying whole-cell recordings, GABA uncaging and single-cell-modeling, we show that proximal dendritic inhibition in PVIs is less efficient in lowering perforant path-mediated subthreshold depolarization than distal inhibition but both are highly efficient in silencing PVIs. These inhibitory effects can be explained by proximal shunting and distal strong hyperpolarizing inhibition. In contrast, GC proximal but not distal inhibition is the primary regulator of their excitability and recruitment. In GCs inhibition is hyperpolarizing along the entire somato-dendritic axis with similar strength. Thus, dendritic inhibition differentially controls input-output transformations in PVIs and GCs. Dendritic inhibition in PVIs is suited to balance PVI discharges in dependence on global network activity thereby providing strong and tuned perisomatic inhibition that contributes to the sparse representation of information in GC assemblies.