During brain development the duration of miniature inhibitory postsynaptic currents (mIPSCs) mediated by GABAA receptors (GABAARs) progressively reduces, to accommodate the temporal demands required for precise network activity. Conventionally, this synaptic plasticity results from GABAAR subunit reorganisation. In particular, in certain developing neurones synaptic α2-GABAARs are replaced by α1-GABAARs. However, in thalamocortical neurones of the mouse ventrobasal (VB) thalamus, the major alteration to mIPSC kinetics occurs on postnatal (P) day 10, some days prior to the GABAAR isoform change. Here, whole-cell voltage-clamp recordings from VB neurones of mouse thalamic slices revealed that early in postnatal development (P7–P8), the mIPSC duration is prolonged by local neurosteroids acting in a paracrine or autocrine manner to enhance GABAAR function. However, by P10, this neurosteroid ‘tone’ rapidly dissipates, thereby producing brief mIPSCs. This plasticity results from a lack of steroid substrate as pre-treatment of mature thalamic slices (P20–24) with the GABAAR-inactive precursor 5α-dihydroprogesterone (5α-DHP) resulted in markedly prolonged mIPSCs and a greatly enhanced tonic conductance, mediated by synaptic and extrasynaptic GABAARs, respectively. In summary, endogenous neurosteroids profoundly influence GABAergic neurotransmission in developing VB neurones and govern a transition from slow to fast phasic synaptic events. Furthermore, the retained capacity for steroidogenesis in the mature thalamus raises the prospect that certain physiological or pathophysiological conditions may trigger neurosteroid neosynthesis, thereby providing a local mechanism for fine-tuning neuronal excitability.