The release of GABA from local interneurons in the dorsal lateral geniculate nucleus (dLGN-INs) provides inhibitory control during visual processing within the thalamus. It is commonly assumed that this important class of interneurons originates from within the thalamic complex, but we now show that during early postnatal development Sox14/Otx2-expressing precursor cells migrate from the dorsal midbrain to generate dLGN-INs. The unexpected extra-diencephalic origin of dLGN-INs sets them apart from GABAergic neurons of the reticular thalamic nucleus. Using optogenetics we show that at increased firing rates tectal-derived dLGN-INs generate a powerful form of tonic inhibition that regulates the gain of thalamic relay neurons through recruitment of extrasynaptic high-affinity GABAA receptors. Therefore, by revising the conventional view of thalamic interneuron ontogeny we demonstrate how a previously unappreciated mesencephalic population controls thalamic relay neuron excitability.