Neuropeptides play key roles in shaping the organization and function of neuronal circuits. In the inferior colliculus (IC), which is in the auditory midbrain, Neuropeptide Y (NPY) is expressed by a class of GABAergic neurons that project locally and outside the IC. Most neurons in the IC have local axon collaterals; however, the organization and function of local circuits in the IC remain unknown. We previously found that excitatory 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. As NPY signaling regulates recurrent excitation in other brain regions, we hypothesized that Y1R+ neurons form interconnected local circuits in the IC and that NPY decreases the strength of recurrent excitation in these circuits. To test this hypothesis, we used optogenetics to activate Y1R+ neurons in mice of both sexes while recording from other neurons in the ipsilateral IC. We found that nearly 80% of glutamatergic IC neurons express the Y1 receptor, providing extensive opportunities for NPY signaling to regulate local circuits. Additionally, Y1R+ neuron synapses exhibited 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 decreased recurrent excitation in the IC, suggesting that NPY signaling strongly regulates local circuit function in the auditory midbrain. Our findings show that Y1R+ excitatory neurons form interconnected local circuits in the IC, and their influence over local circuits is regulated by NPY signaling.SIGNIFICANCE STATEMENT Local networks play fundamental roles in shaping neuronal computations in the brain. The IC, localized in the auditory midbrain, plays an essential role in sound processing, but the organization of local circuits in the IC is largely unknown. Here, we show that IC neurons that express the Neuropeptide Y1 receptor (Y1R+ neurons) make up most of the excitatory neurons in the IC and form interconnected local circuits. Additionally, we found that NPY, which is a powerful neuromodulator known to shape neuronal activity in other brain regions, decreases the extensive recurrent excitation mediated by Y1R+ neurons in local IC circuits. Thus, our results suggest that local NPY signaling is a key regulator of auditory computations in the IC.