GABA plays a key role in both embryonic and neonatal brain development. For example, during early neonatal nervous system maturation, synaptic transmission, mediated by GABAA receptors (GABAARs), undergoes a temporally specific form of synaptic plasticity, to accommodate the changing requirements of maturing neural networks. Specifically, the duration of miniature inhibitory postsynaptic currents (mIPSCs), resulting from vesicular GABA activating synaptic GABAARs, is reduced, permitting neurons to appropriately influence the window for postsynaptic excitation. Conventionally, programmed expression changes to the subtype of synaptic GABAAR are primarily implicated in this plasticity. However, it is now evident that in developing thalamic and cortical principal- and inter-neurons an endogenous neurosteroid tone e.g. allopregnanolone, enhances synaptic GABAAR function. Furthermore, a cessation of steroidogenesis, due to a lack of substrate, or a co-factor, appears primarily responsible for early neonatal changes to GABA-ergic synaptic transmission, followed by further refinement, which results from subsequent alterations of the GABAAR subtype. The timing of this cessation of neurosteroid influence is neuron specific, occurring by postnatal day 10 (P10) in thalamus, but about a week later in cortex. Neurosteroid levels are not static, but change dynamically in a variety of physiological and pathophysiological scenarios. Given that GABA plays an important role in brain development, abnormal perturbations of neonatal GABAAR-active neurosteroids, may have a considerable immediate, but also longer term impact, upon neural network activity. Here we review recent evidence that changes in neurosteroidogenesis substantially influence neonatal GABA-ergic synaptic transmission. We discuss the physiological relevance of these findings and how interference of neurosteroid-GABAAR interaction early in life may contribute to psychiatric conditions later in life.