Sensory hypersensitivity is a common and debilitating feature of neurodevelopmental disorders such as Fragile X Syndrome (FXS). However, how developmental changes in neuronal function ultimately culminate in the network dysfunction that underlies sensory hypersensitivities is not known. To address this, we studied the layer 4 barrel cortex circuit in Fmr1 knockout mice, a critical sensory processing circuit in this mouse model of FXS. By systematically studying cellular and synaptic properties of layer 4 neurons and combining with cellular and network simulations, we explored how the array of phenotypes in Fmr1 knockout produce circuit pathology during development that result in sensory processing dysfunction. We show that many of the cellular and synaptic pathologies in Fmr1 knockout mice are antagonistic, mitigating circuit dysfunction, and hence can be regarded as compensatory to the primary pathology.Despite this compensation, the layer 4 network in the Fmr1 knockout exhibits significant alterations in spike output in response to ascending thalamocortical input that we show results in impaired sensory encoding. We suggest that it is this developmental loss of layer 4 sensory encoding precision that drives subsequent developmental alterations in layer 4 -layer 2/3 connectivity and plasticity observed in the Fmr1 knockout, and is a critical process producing sensory hypersensitivity.