During non-rapid eye movement (NREM) sleep, synchronous synaptic activity within the thalamocortical network generates predominantly low frequency oscillations (< 4 Hz) that are modulated by inhibitory inputs from the thalamic reticular nucleus (TRN). Whether TRN cells integrate sleep-wake signals from sub-cortical circuits remains unclear. Here, we identified a monosynaptic LH GABA-TRN GABA transmission that exerts a strong inhibitory control over TRN neurons. We showed that optogenetic activation of this circuit recapitulated state-dependent changes of TRN neuron activity in behaving mice and induced rapid arousal during NREM, but not REM sleep. During deep anesthesia, activation of this circuit induced sustained cortical arousal. In contrast, optogenetic silencing of LH GABA-TRN GABA increased the duration of NREM sleep and amplitude of delta (1–4 Hz) oscillations. Collectively, these results demonstrate that TRN cells integrate subcortical arousal inputs selectively during NREM sleep and may participate in sleep intensity.