Inhibitory local circuit neurons (LCNs), often called interneurons, have vital roles in the development and function of cortical networks. Their inhibitory influences regulate both the excitability of cortical projection neurons on the level of individual cells, and the synchronous activity of projection neuron ensembles that appear to be a neural basis for major aspects of cognitive processing. Dysfunction of LCNs has been associated with neurological and psychiatric diseases, such as epilepsy, schizophrenia, and autism. Here we review progress in understanding LCN fate determination, their nonradial migration to the cortex, their maturation within the cortex, and the contribution of LCN dysfunction to neuropsychiatric disorders.