Oxytocin (OT) is a neuroactive peptide that influences the processing of fearful stimuli in the amygdala. In the central nucleus of the amygdala, the activation of OT receptors alters neural activity and ultimately suppresses the behavioral response to a fear conditioned stimulus. Receptors for OT are also found in the lateral amygdala (LA), and infusion of OT into the basolateral amygdala complex affects the formation and consolidation of fear memories. Yet, how OT receptor activation alters neurons and neural networks in the LA is unknown. In this study we used whole cell electrophysiological recordings to determine how OT-receptor activation changes synaptic transmission and synaptic plasticity in the LA of Sprague-Dawley rats. Our results demonstrate that OT-receptor activation results in a 200% increase in spontaneous inhibitory transmission in the LA that leads to the activation of presynaptic GABAB receptors. The activation of these receptors inhibits excitatory transmission in the LA, blocking long-term potentiation of cortical inputs onto LA neurons. Hence, this study provides the first demonstration that OT influences synaptic transmission and plasticity in the LA, revealing a mechanism that could explain how OT regulates the formation and consolidation of conditioned fear memories in the amygdala.NEW & NOTEWORTHY This study investigates modulation of synaptic transmission by oxytocin (OT) in the lateral amygdala (LA). We demonstrate that OT induces transient increases in spontaneous GABAergic transmission by activating interneurons in the basolateral amygdala. The resultant increase in GABA release in the LA activates presynaptic GABAB receptors on both inhibitory and excitatory inputs onto LA neurons, reducing release probability at these synapses. We subsequently demonstrate that OT modulates synaptic plasticity at cortical inputs to the LA.