Neuropeptide Y (NPY) has robust anxiolytic properties and is reduced in patients with anxiety disorders. However, the mechanisms by whichNPYmodulates circuit function to reduce anxiety behavior are not known. Anxiolytic effects ofNPYare mediated in the CA1 region of hippocampus, and NPY injection into hippocampus alleviates anxiety symptoms in the predator scent stress model of stress-induced anxiety. The mechanisms that regulate NPY release, and its effects on CA1 synaptic function, are not fully understood. Here we show in acute hippocampal slices from mice that endogenous NPY, released in response to optogenetic stimulation or synaptically evoked spiking of NPY+ cells, suppresses both of the feedforward pathways to CA1. Stimulation of temporoammonic synapses with a physiologically derived spike train causes NPY release that reduces short-term facilitation, whereas the release of NPY that modulates Schaffer collateral synapses requires integration of both the Schaffer collateral and temporoammonic pathways. Pathway specificity of NPY release is conferred by three functionally distinctNPY +cell types, with differences in intrinsic excitability and short-term plasticity of their inputs. Predator scent stress abolishes the release of endogenous NPY onto temporoammonic synapses, a stress-sensitive pathway, thereby causing enhanced short-term facilitation. Our results demonstrate how stress alters CA1 circuit function through the impairment of endogenous NPY release, potentially contributing to heightened anxiety.