The physiological significance of canonical transient receptor potential (TRPC) ion channels in sensory systems is rapidly emerging. Heterologous expression studies show that TRPC3 is a significant Ca2+ entry pathway, with dual activation via G protein-coupled receptor (GPCR)–phospholipase C–diacylglycerol second messenger signaling, and through negative feedback, whereby a fall in cytosolic Ca2+ releases Ca2+–calmodulin channel block. We hypothesised that the latter process contributes to cochlear hair cell cytosolic Ca2+ homeostasis. Confocal microfluorimetry with the Ca2+ indicator Fluo-4 acetoxymethylester showed that, when cytosolic Ca2+ was depleted, Ca2+ re-entry was significantly impaired in mature TRPC3−/− inner and outer hair cells. The impact of this disrupted Ca2+ homeostasis on sound transduction was assessed with the use of distortion product otoacoustic emissions (DPOAEs), which constitute a direct measure of the outer hair cell transduction that underlies hearing sensitivity and frequency selectivity. TRPC3−/− mice showed significantly stronger DPOAE (2f1 − f2) growth functions than wild-type (WT) littermates within the frequency range of best hearing acuity. This translated to hyperacusis (decreased threshold) measured by the auditory brainstem response (ABR). TRPC3−/− and WT mice did not differ in the levels of temporary and permanent threshold shift arising from noise exposure, indicating that potential GPCR signaling via TRPC3 is not pronounced. Overall, these data suggest that the Ca2+ set-point in the hair cell, and hence membrane conductance, is modulated by TRPC3s through their function as a negative feedback-regulated Ca2+ entry pathway. This TPRC3-regulated Ca2+ homeostasis shapes the sound transduction input–output function and auditory neurotransmission.