Kappa opioid receptors (KORs) and their endogenous ligand, dynorphin, have been implicated in a variety of neuropsychiatric disorders including anxiety and alcohol addiction. Here, we demonstrate the function and role of KORs in the bed nucleus of the stria terminalis (BNST), a key brain region involved in these diseases. In the first series of experiments, we show that KORs in the BNST inhibit glutamate release via a presynaptic, p38- and calcium- dependent mechanism. This synaptic inhibition is specific to basolateral amygdala (BLA) inputs, a previously identified key pathway in rodent models of anxiety-related behaviors. Additionally, we identified a frequency-dependent, light-evoked, local dynorphin-induced heterosynaptic plasticity of glutamate inputs to the BNST, allowing for optogenetic control of peptidergic transmission. We found differential KOR modulation of the BLA-BNST input based on the postsynaptic neurochemical identity. Collectively, these results demonstrate a local dynorphin- and KOR- dependent mechanism of inhibiting an anxiolytic pathway, providing a discrete therapeutic target for treatment of anxiety disorders. In the second series of experiments, we show that following chronic intermittent iv ethanol exposure (CIE), a model of alcohol exposure, KORs differentially modulate glutamate and GABA in the BNST. KOR inhibition of electrically-evoked glutamate inputs is decreased, while KOR inhibition of electrically-evoked GABA inputs is increased, despite overall properties of glutamatergic and GABAergic transmission remaining intact. This change in synaptic physiology is complementary to a KORdependent behavioral change: mice exposed to ethanol show decreased social preference as compared to air exposed, an effect which is partially rescued by systemic pre-administration of the KOR antagonist JDTic. Taken together, these experiments demonstrate KOR-dependent alterations of synaptic transmission in the BNST following CIE, making the BNST a potential site of action for KOR targeted therapies related to alcohol and anxiety. Jointly, these experiments expand our understanding of how key peptidergic transmission in the extended amygdala can play a role in anxiety and addiction related diseases.