Summary Benzodiazepines (BZs) allosterically modulate γ-aminobutyric acid type-A receptors (GABAARs) to increase inhibitory synaptic strength. Diazepam binding inhibitor (DBI) protein is a BZ site ligand expressed endogenously in the brain, but functional evidence for BZ-mimicking positive modulatory actions has been elusive. We demonstrate an endogenous potentiation of GABAergic synaptic transmission and responses to GABA uncaging in the thalamic reticular nucleus (nRT) that is absent in both nm1054 mice, in which the Dbi gene is deleted, and mice in which BZ binding to α3 subunit-containing GABAARs is disrupted. Viral transduction of DBI into nRT is sufficient to rescue the endogenous potentiation of GABAergic transmission in nm1054 mice. Both mutations enhance thalamocortical spike-and-wave discharges characteristic of absence epilepsy. Together these results indicate that DBI mediates endogenous nucleus-specific BZ-mimicking (“endozepine”) roles to modulate nRT function and suppress thalamocortical oscillations. Enhanced DBI signaling might serve as a novel therapy for epilepsy and other neurological disorders.