The balance between excitation and inhibition in the cortex is crucial in determining sensory processing. Because the amount of excitation varies, maintaining this balance is a dynamic process; yet the underlying mechanisms are poorly understood. We show here that the activity of even a single layer 2/3 pyramidal cell in the somatosensory cortex of the rat generates widespread inhibition that increases disproportionately with the number of active pyramidal neurons. This supralinear increase of inhibition results from the incremental recruitment of somatostatin-expressing inhibitory interneurons located in layers 2/3 and 5. The recruitment of these interneurons increases tenfold when they are excited by two pyramidal cells. A simple model demonstrates that the distribution of excitatory input amplitudes onto inhibitory neurons influences the sensitivity and dynamic range of the recurrent circuit. These data show that through a highly sensitive recurrent inhibitory circuit, cortical excitability can be modulated by one pyramidal cell.