Diffuse white matter injury (DWMI), a leading cause of neurodevelopmental disabilities in preterm infants, is characterized by reduced oligodendrocyte formation. NG2-expressing oligodendrocyte precursor cells (NG2 cells) are exposed to various extrinsic regulatory signals, including the neurotransmitter GABA. We investigated GABAergic signaling to cerebellar white matter NG2 cells in a mouse model of DWMI (chronic neonatal hypoxia). We found that hypoxia caused a loss of GABAA receptor-mediated synaptic input to NG2 cells, extensive proliferation of these cells and delayed oligodendrocyte maturation, leading to dysmyelination. Treatment of control mice with a GABAA receptor antagonist or deletion of the chloride-accumulating transporter NKCC1 mimicked the effects of hypoxia. Conversely, blockade of GABA catabolism or GABA uptake reduced NG2 cell numbers and increased the formation of mature oligodendrocytes both in control and hypoxic mice. Our results indicate that GABAergic signaling regulates NG2 cell differentiation and proliferation in vivo, and suggest that its perturbation is a key factor in DWMI.