Inhibitory and excitatory neurons form intricate interconnected circuits in the mammalian sensory cortex. Whereas the function of excitatory neurons is largely to integrate and transmit information within and between brain areas, inhibitory neurons are thought to shape the way excitatory neurons integrate information, and they exhibit context-specific and behavior-specific responses. Over the last few years, work across sensory modalities has begun unraveling the function of distinct types of cortical inhibitory neurons in sensory processing, identifying their contribution to controlling stimulus selectivity of excitatory neurons and modulating information processing based on the behavioral state of the subject. Here, we review results from recent studies and discuss the implications for the contribution of inhibition to cortical circuit activity and information processing.