MicroRNAs (miRNAs) are critical regulators of nervous system function, and in vivo knockout studies have demonstrated that miRNAs are necessary for multiple aspects of neuronal development and survival. However, the role of miRNA biogenesis in the formation and function of synapses in the cerebral cortex is only minimally understood. Here, we have generated and characterized a mouse line with a conditional neuronal deletion of Dgcr8, a miRNA biogenesis protein predicted to process miRNAs exclusively. Loss of Dgcr8 in pyramidal neurons of the cortex results in a non-cell-autonomous reduction in parvalbumin interneurons in the prefrontal cortex, accompanied by a severe deficit in inhibitory synaptic transmission and a corresponding reduction of inhibitory synapses. Together, these results suggest a vital role for miRNAs in governing essential aspects of inhibitory transmission and interneuron development in the mammalian nervous system. These results may be relevant to human diseases such as schizophrenia, where both altered Dgcr8 levels as well as aberrant inhibitory transmission in the prefrontal cortex have been postulated to contribute to the pathophysiology of the disease.