Neuropathic pain and allodynia may arise from sensitization of central circuits. We report a mechanism of disinhibition-based central sensitization resulting from long-term depression (LTD) of GABAergic interneurons as a consequence of TRPV1 activation in the spinal cord. Intrathecal administration of TRPV1 agonists led to mechanical allodynia that was not dependent on peripheral TRPV1 neurons. TRPV1 was functionally expressed in GABAergic spinal interneurons and activation of spinal TRPV1 resulted in LTD of excitatory inputs and a reduction of inhibitory signaling to spinothalamic tract (STT) projection neurons. Mechanical hypersensitivity after peripheral nerve injury was attenuated in TRPV1^−/− mice but not in mice lacking TRPV1-expressing peripheral neurons. Mechanical pain was reversed by a spinally applied TRPV1 antagonist while avoiding the hyperthermic side effect of systemic treatment. Our results demonstrate that spinal TRPV1 plays a critical role as a synaptic regulator and suggest the utility of central nervous system-specific TRPV1 antagonists for treating neuropathic pain.