In neuronal systems, excitation and inhibition must be well balanced to ensure reliable information transfer. The cone/horizontal cell (HC) interaction in the retina is an example of this. Because natural scenes encompass an enormous intensity range both in temporal and spatial domains, the balance between excitation and inhibition in the outer retina needs to be adaptable. How this is achieved is unknown. Using electrophysiological techniques in the isolated retina of the goldfish, it was found that opening Ca2+-dependent Cl- channels in recorded cones reduced the size of feedback responses measured in both cones and HCs. Furthermore, we show that cones express Cl- channels that are gated by GABA released from HCs. Similar to activation of ICl(Ca), opening of these GABA-gated Cl- channels reduced the size of light-induced feedback responses both in cones and HCs. Conversely, application of picrotoxin, a blocker of GABAA and GABAC receptors, had the opposite effect. In addition, reducing GABA release from HCs by blocking GABA transporters also led to an increase in the size of feedback. Because the independent manipulation of Ca2+-dependent Cl- currents in individual cones yielded results comparable to bath-applied GABA, it was concluded that activation of either Cl- current by itself is sufficient to reduce the size of HC feedback. However, additional effects of GABA on outer retinal processing cannot be excluded. These results can be accounted for by an ephaptic feedback model in which a cone Cl- current shunts the current flow in the synaptic cleft. The Ca2+-dependent Cl- current might be essential to set the initial balance between the feedforward and the feedback signals active in the cone HC synapse. It prevents that strong feedback from HCs to cones flood the cone with Ca2+. Modulation of the feedback strength by GABA might play a role during light/dark adaptation, adjusting the amount of negative feedback to the signal to noise ratio of the cone output.