Midbrain dopaminergic (DA) neurons are thought to guide learning via phasic elevations of firing in response to reward predicting stimuli. The circuit mechanism for these signals remains unclear. Using extracellular recording during associative learning we show that inhibitory neurons in the ventral midbrain of mice respond to salient auditory stimuli with a burst of activity that occurs prior to the onset of the phasic response of DA neurons. This population of inhibitory neurons exhibited enhanced responses during extinction and was anti correlated with the phasic response of simultaneously recorded DA neurons. Optogenetic stimulation suggested that this population was in part derived from inhibitory projection neurons of the substantia nigra that provide a robust monosynaptic inhibition of DA neurons. Our results thus elaborate upon the dynamic upstream circuits that shape the phasic activity of DA neurons and suggest that the inhibitory microcircuit of the midbrain is critical for new learning in extinction.