Neuropeptides play key roles in shaping the organization and function of neuronal circuits. In the inferior colliculus (IC), which is located in the auditory midbrain, Neuropeptide Y (NPY) is expressed by a large class of GABAergic neurons that project locally as well as outside the IC. The IC integrates information from numerous auditory nuclei making the IC an important hub for sound processing. Most neurons in the IC have local axon collaterals, however the organization and function of local circuits in the IC remains largely unknown. We previously found that neurons in the IC can express the NPY Y1 receptor (Y1R+) and application of the Y1R agonist, [Leu31, Pro34]-NPY (LP-NPY), decreases the excitability of Y1R+neurons. To investigate how Y1R+neurons and NPY signaling contribute to local IC networks, we used optogenetics to activate Y1R+neurons while recording from other neurons in the ipsilateral IC. Here, we show that 78.4% of glutamatergic neurons in the IC express the Y1 receptor, providing extensive opportunities for NPY signaling to regulate excitation in local IC circuits. Additionally, Y1R+neuron synapses exhibit modest short-term synaptic plasticity, suggesting that local excitatory circuits maintain their influence over computations during sustained stimuli. We further found that application of LP-NPY decreases recurrent excitation in the IC, suggesting that NPY signaling strongly regulates local circuit function in the auditory midbrain. Together, our data show that excitatory neurons are highly interconnected in the local IC and their influence over local circuits is tightly regulated by NPY signaling.