Ketamine, a general anesthetic, has rapid and sustained antidepressant effects when administered at lower doses. Anesthetic levels of ketamine reduce excitatory transmission by binding deep into the pore of NMDA receptors where it blocks current influx. In contrast, the molecular targets responsible for antidepressant levels of ketamine remain controversial. We used electrophysiology, structure-based mutagenesis, and molecular and kinetic modeling to investigate the effects of ketamine on NMDA receptors across an extended range of concentrations. We report functional and structural evidence that, at nanomolar concentrations, ketamine interacts with membrane-accessible hydrophobic sites on NMDA receptors, which are distinct from the established pore-blocking site. These interactions stabilize receptors in pre-open states and produce an incomplete, voltage- and pH-dependent reduction in receptor gating. Notably, this allosteric inhibitory mechanism spares brief synaptic-like receptor activations and preferentially reduces currents from receptors activated tonically by ambient levels of neurotransmitters. We propose that the hydrophobic sites we describe here account for clinical effects of ketamine not shared by other NMDA receptor open-channel blockers such as memantine and represent promising targets for developing safe and effective neuroactive therapeutics.