Nitric oxide (NO) is generated by multiple cell types in the vertebrate retina, including amacrine cells. We investigate the role of NO in the modulation of synaptic function using a culture system containing identified retinal amacrine cells. We find that moderate concentrations of NO alter GABA(A) receptor function to produce an enhancement of the GABA-gated current. Higher concentrations of NO also enhance GABA-gated currents, but this enhancement is primarily due to a substantial positive shift in the reversal potential of the current. Several pieces of evidence, including a similar effect on glycine-gated currents, indicate that the positive shift is due to an increase in cytosolic Cl-. This change in the chloride distribution is especially significant because it can invert the sign of GABA- and glycine-gated voltage responses. Furthermore, current- and voltage-clamp recordings from synaptic pairs of GABAergic amacrine cells demonstrate that NO transiently converts signaling at GABAergic synapses from inhibition to excitation. Persistence of the NO-induced shift in E(Cl-) in the absence of extracellular Cl- indicates that the increase in cytosolic Cl- is due to release of Cl- from an internal store. An NO-dependent release of Cl- from an internal store is also demonstrated for rat hippocampal neurons indicating that this mechanism is not restricted to the avian retina. Thus signaling in the CNS can be fundamentally altered by an NO-dependent mobilization of an internal Cl- store.