Inflammation has been implicated in the progression of neurological disease, yet precisely how inflammation affects neuronal function remains unclear. Tumor necrosis factor-␣ (TNF␣) is a proinflammatory cytokine that regulates synapse function by controlling neurotransmitter receptor trafficking and homeostatic synaptic plasticity. Here we characterize the mechanisms through which TNF␣ regulates inhibitory synapse function in mature rat and mouse hippocampal neurons. Acute application of TNF␣ induces a rapid and persistent decrease of inhibitory synaptic strength and downregulation of cell-surface levels of GABA A Rs containing ␣1, ␣2, 2/3, and ␥2 subunits. We show that trafficking of GABA A Rs in response to TNF␣ is mediated by neuronally expressed TNF receptor 1 and requires activation of p38 MAPK, phosphatidylinositol 3-kinase, protein phosphatase 1 (PP1), and dynamin GTPase. Furthermore, TNF␣ enhances the association of PP1 with GABA A R 3 subunits and dephosphorylates a site on 3 known to regulate phospho-dependent interactions with the endocytic machinery. Conversely, we find that calcineurin and PP2A are not essential components of the signaling pathway and that clustering of the scaffolding protein gephyrin is only reduced after the initial receptor endocytosis. Together, these findings demonstrate a distinct mechanism of regulated GABA A R endocytosis that may contribute to the disruption of circuit homeostasis under neuroinflammatory conditions.