Kappa opioid receptors (KORs) are involved in a variety of aversive behavioral states, including anxiety. To date, a circuit-based mechanism for KOR-driven anxiety has not been described. Here, we show that activation of KORs inhibits glutamate release from basolateral amygdala (BLA) inputs to the bed nucleus of the stria terminalis (BNST) and occludes the anxiolytic phenotype seen with optogenetic activation of BLA-BNST projections. In addition, deletion of KORs from amygdala neurons results in an anxiolytic phenotype. Furthermore, we identify a frequency-dependent, optically evoked local dynorphin-induced heterosynaptic plasticity of glutamate inputs in the BNST. We also find that there is cell type specificity to the KOR modulation of the BLA-BNST input with greater KOR-mediated inhibition of BLA dynorphin-expressing neurons. Collectively, these results provide support for a model in which local dynorphin release can inhibit an anxiolytic pathway, providing a discrete therapeutic target for the treatment of anxiety disorders.