Inhibitory interneurons (INs) critically control the excitability and plasticity of neuronal networks, but whether activity can direct INs into specific circuits during development is unknown. Here, we report that in the dorsal lateral geniculate nucleus (dLGN), which relays retinal input to the cortex, circuit activity is required for the migration, molecular differentiation, and functional integration of INs. We first characterize the prenatal origin and molecular identity of dLGN INs, revealing their recruitment from an Otx2(+) neuronal pool located in the adjacent ventral LGN. Using time-lapse and electrophysiological recordings, together with genetic and pharmacological perturbation of retinal waves, we show that retinal activity directs the navigation and circuit incorporation of dLGN INs during the first postnatal week, thereby regulating the inhibition of thalamocortical circuits. These findings identify an input-dependent mechanism regulating IN migration and circuit inhibition, which may account for the progressive recruitment of INs into expanding excitatory circuits during evolution.