Lateral habenula (LHb) neurons convey aversive and negative reward conditions through potent indirect inhibition of ventral tegmental area (VTA) dopaminergic neurons. Although VTA dopaminergic neurons reciprocally project to the LHb, the electrophysiological properties and the behavioral consequences associated with selective manipulations of this circuit are unknown. Here, we identify an inhibitory input to the LHb arising from a unique population of VTA neurons expressing dopaminergic markers. Optogenetic activation of this circuit resulted in no detectable dopamine release in LHb brain slices. Instead, stimulation produced GABA-mediated inhibitory synaptic transmission, which suppressed the firing of postsynaptic LHb neurons in brain slices and increased the spontaneous firing rate of VTA dopaminergic neurons in vivo. Furthermore, in vivo activation of this pathway produced reward-related phenotypes that were dependent on intra-LHb GABAA receptor signaling. These results suggest that noncanonical inhibitory signaling by these hybrid dopaminergic-GABAergic neurons act to suppress LHb output under rewarding conditions. •A unique population of VTA neurons projects to the LHb•These neurons contain DAergic markers, but release GABA to inhibit LHb neurons•Activation of this projection enhances spontaneous midbrain DAergic activity•Activation of this projection is rewarding and is mediated by LHb GABA signaling Stamatakis et al. demonstrate that a unique population of ventral tegmental area neurons expresses GABAergic and dopaminergic markers and project to the lateral habenula. Functionally, this projection inhibits postsynaptic lateral habenula neurons, via released GABA, to promote reward.