We have used frequency-dependent inhibition, a form of short-term plasticity mediated by the activation of inhibitory interneurons, to characterize in vivo alterations in local circuit activity and plasticity in the dentate gyrus of the anesthetized rat. The application of the GABA-A receptor blocker, bicuculline, induced a transient reduction in frequency-dependent inhibition, indicating that this form of local circuit activity is GABA-mediated. Delivering theta burst stimulation to the perforant pathway of the hippocampus induced long-term potentiation of the population excitatory post-synaptic potential, reflecting the potentiation of the perforant path-dentate gyrus granule cell synapses. Concomitantly, theta burst stimulation caused a lasting reduction in frequency-dependent inhibition. In aged rats, long-term potentiation could be induced to the same level as in young rats, but while in young rats frequency-dependent inhibition was concomitantly reduced, frequency-dependent inhibition in the old rats did not show this form of plasticity. Our results indicate that theta burst stimulation induces a form of local circuit plasticity independently of its known capacity to induce synaptic plasticity, and that this form of local circuit plasticity is compromised in aging. Based on these results we propose a potential role for plasticity at the level of the local circuit in learning and memory.