The dorsolateral bed nucleus of the stria terminalis (BNSTDL) has high expression of oxytocin (OT) receptors (OTR), which were shown to facilitate cued fear. However, the role of OTR in the modulation of BNSTDL activity remains elusive. BNSTDL contains GABA-ergic neurons classified based on intrinsic membrane properties into three types. Using in vitro patch-clamp recordings in male rats, we demonstrate that OT selectively excites and increases spontaneous firing rate of Type I BNSTDL neurons. As a consequence, OT increases the frequency, but not amplitude, of spontaneous inhibitory post-synaptic currents (sIPSCs) selectively in Type II neurons, an effect abolished by OTR antagonist or tetrodotoxin, and reduces spontaneous firing rate in these neurons. These results suggest an indirect effect of OT in Type II neurons, which is mediated via OT-induced increase in firing of Type I interneurons. As Type II BNSTDL neurons were shown projecting to the central amygdala (CeA), we also recorded from retrogradely labeled BNST→CeA neurons and we show that OT increases the frequency of sIPSC in these Type II BNST→CeA output neurons. In contrast, in Type III neurons, OT reduces the amplitude, but not frequency, of both sIPSCs and evoked IPSCs via a postsynaptic mechanism without changing their intrinsic excitability. We present a model of fine-tuned modulation of BNSTDL activity by OT, which selectively excites BNSTDL interneurons and inhibits Type II BNST→CeA output neurons. These results suggest that OTR in the BNST might facilitate cued fear by inhibiting the BNST→CeA neurons.