The release of neurotransmitter at a synapse is a stochastic process such that the arrival of an action potential triggers vesicle fusion with a limited probability (pr). Although pr is a fundamental parameter in defining synaptic efficacy, it is not uniform across all synapses, and the mechanisms by which a given synapse sets its basal release probability are unknown. In this study we employed FM-dye imaging, quantal analysis of paired whole-cell recordings and serial ultrastructural analysis with 3D reconstruction to address this question. By using small networks of cultured hippocampal neurons we were able to make optical measurements of pr at single synapses and show that release probability is set locally by the dendrite through a negative feedback mechanism. In synaptically connected pairs of neurons, a high resolution spatial analysis revealed that neighboring synapses on the same dendritic branch show very similar release probabilities, even though the connection overall has a broad distribution of pr. Moreover, pr is negatively correlated with the number of synapses made between the axon and the dendritic branch. Increasing network activity elicits a homeostatic decrease in pr that is dependent on dendritic depolarization, and imposing a spatially uniform input to the dendrite significantly reduces the variability in pr. Furthermore, manipulating the activity of a single dendritic branch leads to a spatially selective decrease in pr. Our results indicate that local dendritic activity is the major determinant of basal release probability, and theoretical simulations suggest that this retrograde regulation provides a means to maintain synchronously activated synapses in their operational range.