The main inhibitory neurotransmitter in the mammalian forebrain is γ-amino butyric acid (GABA), which acts through A and B type receptors. GABAA receptors mediate inhibition via an increase in membrane conductance (shunting) and/or membrane potential hyperpolarization. Shunting inhibition is thought to decrease the gain between neural input and output, and thus to act as a divisor, but may do so only below the spike threshold. To investigate the role of shunting inhibition in neocortical neurons, whole-cell patch-clamp recordings were obtained from layer V pyramidal cells of somatosensory cortex in juvenile rats. Sub- and suprathreshold voltage responses were elicited by somatic step current injections and a shunting conductance was generated via a dynamic clamp. Increasing the dynamic clamp shunting conductance led to a parallel shift of the current–discharge curves and a reduced slope of the current–voltage relationship, i.e. a decrease of neural gain. Selective activation of GABAAA receptors with the competitive agonist isoguvacine or rises of endogenous GABA with the specific reuptake blocker nipecotic acid led to a proportional decrease of subthreshold membrane voltage, but a constant offset of discharge rates, thus acting like a shunting conductance. Similarly, isoguvacine and nipecotic acid decreased the gain of excitatory postsynaptic potentials. In all three experimental conditions, shunting inhibition divisively affected subthreshold voltages, while the time-averaged suprathreshold membrane potential was offset by a constant amount. I conclude that shunting inhibition in pyramidal cells has a dual impact on neural output: it is divisive for subthreshold voltages but subtractive for spike frequencies.