Gender differences in psychiatric disorders such as addiction may be modulated by the steroid hormone estrogen. For instance, 17β-estradiol (E2), the predominant form of circulating estrogen in pre-menopausal females, increases ethanol consumption, suggesting that E2 may affect the rewarding properties of ethanol and thus the development of alcohol use disorder in females. The ventral tegmental area (VTA) is critically involved in the rewarding and reinforcing effects of ethanol. In order to determine the role of E2 in VTA physiology, gonadally intact female mice were sacrificed during diestrus II (high E2) or estrus (low E2) for electrophysiology recordings. We measured the excitation by ethanol and inhibition by dopamine (DA) of VTA DA neurons and found that both excitation by ethanol and inhibition by dopamine were greater in diestrus II compared with estrus. Treatment of VTA slices from mice in diestrus II with an estrogen receptor antagonist (ICI 182,780) reduced ethanol-stimulated neuronal firing, but had no effect on ethanol-stimulated firing of neurons in slices from mice in estrus. Surprisingly, ICI 182,780 did not affect the inhibition by DA, indicating different mechanisms of action of estrogen receptors in altering ethanol and DA responses. We also examined the responses of VTA DA neurons to ethanol and DA in ovariectomized mice treated with E2 and found that E2 treatment enhanced the responses to ethanol and DA in a manner similar to what we observed in mice in diestrus II. Our data indicate that E2 modulates VTA neuron physiology, which may contribute to both the enhanced reinforcing and rewarding effects of alcohol and the development of other psychiatric disorders in females that involve alterations in DA neurotransmission.