The steroid 17β-estradiol (E2) is well known to influence hippocampal functions such as memory, affective behaviors, and epilepsy. There is growing awareness that in addition to responding to ovarian E2, the hippocampus of both males and females synthesizes E2 as a neurosteroid that could acutely modulate synaptic function. Previous work on acute E2 actions in the hippocampus has focused on excitatory synapses. Here, we show that E2 rapidly suppresses inhibitory synaptic transmission in hippocampal CA1. E2 acts through the α form of the estrogen receptor to stimulate postsynaptic mGluR1-dependent mobilization of the endocannabinoid anandamide, which retrogradely suppresses GABA release from CB1 receptor-containing inhibitory presynaptic boutons. Remarkably, this effect of E2 is sex specific, occurring in females but not in males. Acute E2 modulation of endocannabinoid tone and consequent suppression of inhibition provide a mechanism by which neurosteroid E2 could modulate hippocampus-dependent behaviors in a sex-specific manner.