Gamma-aminobutyric acid (GABA) plays a crucial role in the central nervous system as an inhibitory neurotransmitter. Imbalances of this neurotransmitter are associated with neurological diseases, such as Alzheimer’s and Parkinson’s disease, and psychological disorders, including anxiety, depression, and stress. Since GABA has long been believed to not cross the blood–brain barrier, the effects of circulating GABA on the brain are neglected. However, emerging evidence has demonstrated that changes in both circulating and brain levels of GABA are associated with changes in gut microbiota composition and that changes in GABA levels and microbiota composition play a role in modulating mental health. This recent research has raised the possibility that GABA may be a potent mediator of the gut–brain axis. This review article will cover up-to-date information about GABA-producing microorganisms isolated from human gut and food sources, explanation why those microorganisms produce GABA, food factors inducing gut–GABA production, evidence suggesting GABA as a mediator linking between gut microbiota and mental health, including anxiety, depression, stress, epilepsy, autism spectrum disorder, and attention deficit hyperactivity disorder, and novel information regarding homocarnosine-a predominant brain peptide that is a putative downstream mediator of GABA in regulating brain functions. This review will help us to understand how the gut microbiota and GABA-homocarnosine metabolism play a significant role in brain functions. Nonetheless, it could support further research on the use of GABA production-inducing microorganisms and food factors as agents to treat neurological and psychological disorders.