The lateral habenula (LHb) is implicated in emotional processing, especially depression. Recent studies indicate that the basal forebrain (BF) transmits reward or aversive signals to the LHb. However, the contribution of the BF-LHb circuit to the pathophysiology of depression still needs to be determined. Here, we find that the excitatory projection to the LHb from the substantia innominata (SI), a BF subregion, is activated by aversive stimuli and inhibited by reward stimuli. Furthermore, chronic activation of the SI-LHb circuit is sufficient to induce depressive-like behaviors, whereas inhibition of the circuit alleviates chronic stress-induced depressive-like phenotype. We also find that reward consumption buffers depressive-like behaviors induced by chronic activation of the SI-LHb circuit. In summary, we systematically define the function and mechanism of the SI-LHb circuit in modulating depressive-like behaviors, thus providing important insights to better decipher LHb processing in the pathophysiology of depression.