Significance We investigated the mechanisms of tremor generation in essential tremor (ET). Using computational modeling we show that tremor-related activity can originate from the olivocerebellar loop in response to a dysfunction and compensatory up-regulation of GABA receptors in the dentate nucleus of cerebellum. The emerging tremor-related activity then projects to thalamus and reaches the corticothalamic motor loop. Consistent with clinical observations, the study shows that the tremor frequency decreases as the up-regulation becomes stronger and increases as high-frequency stimulation is delivered to the thalamus. Our results provide an explanation of how local synaptic abnormalities would lead to widespread tremor-related neural activity in ET and suggest that compensatory processes in degenerative diseases may underlie brain dysfunction.