The lateral habenula (LHb) is an epithalamic brain region associated with value-based decision making and stress evasion through its modulation of dopamine (DA)-mediated reward circuitry. Specifically, increased activity of the LHb is associated with drug addiction, schizophrenia and stress-related disorders such as depression, anxiety and posttraumatic stress disorder. Dynorphin (Dyn)/Kappa opioid receptor (KOR) signaling is a mediator of stress response in reward circuitry. Previously, we have shown that maternal deprivation (MD), a severe early life stress, increases LHb intrinsic excitability while blunting the response of LHb neurons to extra hypothalamic corticotropin-releasing factor (CRF) signaling, another stress mediator. CRF pathways also interact with Dyn/KOR signaling. Surprisingly, there has been little study of direct KOR regulation of the LHb despite its distinct role in stress, reward and aversion processing. To test the functional role of Dyn-KOR signaling in the LHb, we utilized ex-vivo electrophysiology combined with pharmacological tools in rat LHb slices. We show that activation of KORs by a KOR agonist (U50,488) exerts differential effects on the excitability of two distinct subpopulations of LHb neurons that differ in their expression of hyperpolarization-activated cation currents (HCN, Ih). Specifically, KOR stimulation increases neuronal excitability in LHb neurons with large Ih currents (Ih+) while decreases neuronal excitability in small/negative Ih (Ih-) neurons. Additionally, we found that an intact fast-synaptic transmission is required for the effects of U50,488 on the excitability of both Ih- and Ih+ LHb neuronal subpopulations. Consistently, KOR activation also altered both glutamatergic and GABAergic synaptic transmission. While stimulation of presynaptic KORs uniformly suppressed glutamate release onto LHb neurons, we found that U50, 488 either increased or decreased GABA release. We also found that MD significantly increased immunolabeled Dyn (the endogenous KOR agonist) labeling in neuronal fibers in LHb while significantly decreased mRNA levels of KORs in LHb tissues compared to those from non-maternally deprived (non-MD) control rats. While total p38 MAPK (a downstream signaling pathway driven by KOR activation) expression was elevated in the LHb of MD rats compared to non-MD controls, we found that application of KOR-specific agonist, U50,488, onto LHb slices was still able to alter phosphorylated p38 MAPK (ph-p38) expression in MD rats similar to non-MD controls. Moreover, we found that the U50,488-mediated increase in LHb neuronal firing observed in non-MD rats was absent following MD. Altogether, this is the first demonstration of the existence of the functional Dyn/KOR signaling in the LHb that can be modulated in response to severe early life stressors such as MD.