Fetal alcohol exposure (FAE) is the leading preventable developmental cause of cognitive dysfunction. Even in the absence of binge drinking, alcohol consumption during pregnancy can leave offspring deficient. However, the mechanisms underlying these deficiencies are unknown. Using a mouse model of gestational ethanol exposure (GEE), we show increased instrumental lever-pressing and disruption of efficient habitual actions in adults, indicative of disrupted cognitive function. In vivo electrophysiology reveals disrupted action encoding in dorsolateral striatum (DLS) associated with altered habit learning. GEE mice exhibit decreased GABAergic transmission onto DLS projection neurons, including inputs from parvalbumin interneurons, and increased endocannabinoid tone. Chemogenetic activation of DLS parvalbumin interneurons reduces the elevated lever pressing of GEE mice. Pharmacologically increasing endocannabinoid tone mimics GEE effects on cognition and synaptic transmission. These findings show GEE induces long-lasting deficits in cognitive function that may contribute to human FAE, and identify potential mechanisms for future therapeutic targeting.