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Background: Aberrant dopamine neuron activity is attributable to hyperactivity in hippocampal subfields driving a pathological increase in dopamine neuron activity, which is positively correlated with psychosis in humans. Evidence indicates that hippocampal hyperactivity is due to loss of intrinsic GABAergic (gamma-aminobutyric acidergic) inhibition. We have previously demonstrated that hippocampal GABAergic neurotransmission can be modulated by targeting α5-GABAA receptors, which are preferentially expressed in hippocampal regions. Positive and negative allosteric modulators of α5-GABAA receptors (α5-PAMs and α5-NAMs) elicit effects on hippocampal-dependent behaviors. We posited that the selective manipulation of hippocampal inhibition, using α5-PAMs or α5-NAMs, would modulate dopamine activity in control rats. Further, α5-PAMs would reverse aberrant dopamine neuron activity in a rodent model with schizophrenia-related pathophysiologies (methylazoxymethanol acetate [MAM] model). Methods: We performed in vivo extracellular recordings of ventral tegmental area dopamine neurons in anesthetized rats to compare the effects of two novel, selective α5-PAMs (GL-II-73, MP-III-022), a nonselective α-PAM (midazolam), and two selective α5-NAMs (L-655,708, TB 21007) in control and MAM-treated male Sprague Dawley rats (n = 5–9). Results: Systemic or intracranial administration of selective α5-GABAA receptor modulators regulated dopamine activity. Specifically, both α5-NAMs increased dopamine neuron activity in control rats, whereas GL-II-73, MP-III-022, and L-655,708 attenuated aberrant dopamine neuron activity in MAM-treated rats, an effect mediated by the ventral hippocampus. Conclusions: This study demonstrated that α5-GABAA receptor modulation can regulate dopamine neuron activity under control or abnormal activity, providing additional evidence that α5-PAMs and α5-NAMs may have therapeutic applications in psychosis and other psychiatric diseases where aberrant hippocampal activity is present.