Group III metabotropic glutamate receptors (mGluRIII) are expressed broadly throughout the neocortex and hippocampus but are thought to inhibit neurotransmitter release only at a subset of synapses and in a target cell-specific manner. Accordingly, previous slice physiology experiments in hippocampal area CA1 showed that mGluRIII receptors inhibit glutamate and GABA release only at excitatory and inhibitory synapses formed onto GABAergic interneurons, not onto pyramidal cells. Here, we show that the supposed target cell-specific modulation of GABA release only occurs when the extracellular calcium concentration in the recording solution is higher than its physiological concentration in the cerebrospinal fluid. Under more physiological conditions, mGluRIII receptors inhibit GABA release at synapses formed onto both interneurons and pyramidal cells but limit glutamate release only onto interneurons. This previously unrecognized form of mGluRIII-dependent, pre-synaptic modulation of inhibition onto pyramidal cells is accounted for by a reduction in the size of the readily releasable pool, mediated by protein kinase A and its vesicle-associated target proteins, synapsins. Using in vivo whole-cell recordings in behaving mice, we demonstrate that blocking mGluRIII activation in the intact CA1 network results in net effects consistent with decreased inhibition and significantly alters CA1 place cell activity. Together, these findings challenge our current understanding of the role of mGluRIII receptors in the control of synaptic transmission and encoding of spatial information in the hippocampus.