Neuronal computations strongly depend on inhibitory interactions. One such example occurs at the first retinal synapse, where horizontal cells inhibit photoreceptors. This interaction generates the center/surround organization of bipolar cell receptive fields and is crucial for contrast enhancement. Despite its essential role in vision, the underlying synaptic mechanism has puzzled the neuroscience community for decades. Two competing hypotheses are currently considered: an ephaptic and a proton-mediated mechanism. Here we show that horizontal cells feed back to photoreceptors via an unexpected synthesis of the two. The first one is a very fast ephaptic mechanism that has no synaptic delay, making it one of the fastest inhibitory synapses known. The second one is a relatively slow (τ≈200 ms), highly intriguing mechanism. It depends on ATP release via Pannexin 1 channels located on horizontal cell dendrites invaginating the cone synaptic terminal. The ecto-ATPase NTPDase1 hydrolyses extracellular ATP to AMP, phosphate groups, and protons. The phosphate groups and protons form a pH buffer with a pKa of 7.2, which keeps the pH in the synaptic cleft relatively acidic. This inhibits the cone Ca²⁺ channels and consequently reduces the glutamate release by the cones. When horizontal cells hyperpolarize, the pannexin 1 channels decrease their conductance, the ATP release decreases, and the formation of the pH buffer reduces. The resulting alkalization in the synaptic cleft consequently increases cone glutamate release. Surprisingly, the hydrolysis of ATP instead of ATP itself mediates the synaptic modulation. Our results not only solve longstanding issues regarding horizontal cell to photoreceptor feedback, they also demonstrate a new form of synaptic modulation. Because pannexin 1 channels and ecto-ATPases are strongly expressed in the nervous system and pannexin 1 function is implicated in synaptic plasticity, we anticipate that this novel form of synaptic modulation may be a widespread phenomenon.