Fast inhibitory neurotransmission in the brain is largely mediated by the gamma-aminobutyric acid-type A (GABA(A)) receptor. The 3alpha,5alpha-reduced neurosteroids (e.g., allopregnanolone) are the most potent endogenous modulators of the GABA(A) receptor. Although it is known that 3alpha,5alpha-reduced neurosteroid levels change during stress or depression and over the estrus cycle, a basic physiological role consistent with their pharmacological action remains elusive. We used the unique architecture of the auditory midbrain to reveal a role for 3alpha,5alpha-reduced neurosteroids in regulating inhibitory efficacy. After blocking the massive GABAergic projection from the dorsal nucleus of the lateral lemniscus (DNLL) to the contralateral central nucleus of the inferior colliculus (ICC) in anesthetized rats, a reactive increase in the efficacy of other inhibitory circuits in the ICC (separable because of the dominant ear that drives each circuit) was demonstrated with physiological measures-single-neuron activity and a neural-population-evoked response. This effect was prevented by blocking 3alpha,5alpha-reduced neurosteroid synthesis with a 5alpha-reductase inhibitor: finasteride. Immunohistochemistry confirmed that the DNLL blockade induced an increase in 3alpha,5alpha-reduced neurosteroids in the contralateral ICC. This study shows that when GABAergic inhibition is reduced, the brain compensates within minutes by locally increasing synthesis of neurosteroids, thereby balancing excitatory and inhibitory inputs in complex neural circuits.