Balanced synaptic inhibition, controlled by multiple synaptic adhesion proteins, is critical for proper brain function. MDGA1 (meprin, A-5 protein, and receptor protein-tyrosine phosphatase mu [MAM] domain-containing glycosylphosphatidylinositol anchor protein 1) suppresses synaptic inhibition in mammalian neurons, yet the molecular mechanisms underlying MDGA1-mediated negative regulation of GABAergic synapses remain unresolved. Here, we show that the MDGA1 MAM domain directly interacts with the extension domain of amyloid precursor protein (APP). Strikingly, MDGA1-mediated synaptic disinhibition requires the MDGA1 MAM domain and is prominent at distal dendrites of hippocampal CA1 pyramidal neurons. Down-regulation of APP in presynaptic GABAergic interneurons specifically suppressed GABAergic, but not glutamatergic, synaptic transmission strength and inputs onto both the somatic and dendritic compartments of hippocampal CA1 pyramidal neurons. Moreover, APP deletion manifested differential effects in somatostatin- and parvalbumin-positive interneurons in the hippocampal CA1, resulting in distinct alterations in inhibitory synapse numbers, transmission, and excitability. The infusion of MDGA1 MAM protein mimicked postsynaptic MDGA1 gain-of-function phenotypes that involve the presence of presynaptic APP. The overexpression of MDGA1 wild type or MAM, but not MAM-deleted MDGA1, in the hippocampal CA1 impaired novel object-recognition memory in mice. Thus, our results establish unique roles of APP-MDGA1 complexes in hippocampal neural circuits, providing unprecedented insight into -synaptic mechanisms underlying differential tuning of neuronal compartment-specific synaptic inhibition.