Arousal responses linked to locus coeruleus noradrenergic (LC-NA) activity affect cognition. However, the mechanisms that control modes of LC-NA activity remain unknown. Here, we reveal a local population of GABAergic neurons (LC-GABA) capable of modulating LC-NA activity and arousal. Retrograde tracing shows that inputs to LC-GABA and LC-NA neurons arise from similar regions, though a few regions provide differential inputs to one subtype over the other. Recordings in the locus coeruleus demonstrate two modes of LC-GABA responses whereby spiking is either correlated or broadly anticorrelated with LC-NA responses, reflecting anatomically similar and functionally coincident inputs, or differential and non-coincident inputs, to LC-NA and LC-GABA neurons. Coincident inputs control the gain of LC-NA-mediated arousal responses, whereas non-coincident inputs, such as from the prefrontal cortex to the locus coeruleus, alter global arousal levels. These findings demonstrate distinct modes by which an inhibitory locus coeruleus circuit regulates arousal in the brain.