Hundreds of circular RNAs (circRNAs) are highly abundant in the mammalian brain, often with conserved expression. Here we show that the circRNA Cdr1as is massively bound by the microRNAs (miRNAs) miR-7 and miR-671 in human and mouse brains. When the Cdr1as locus was removed from the mouse genome, knockout animals displayed impaired sensorimotor gating—a deficit in the ability to filter out unnecessary information—which is associated with neuropsychiatric disorders. Electrophysiological recordings revealed dysfunctional synaptic transmission. Expression of miR-7 and miR-671 was specifically and posttranscriptionally misregulated in all brain regions analyzed. Expression of immediate early genes such as Fos, a direct miR-7 target, was enhanced in Cdr1as-deficient brains, providing a possible molecular link to the behavioral phenotype. Our data indicate an in vivo loss-of-function circRNA phenotype and suggest that interactions between Cdr1as and miRNAs are important for normal brain function.