Background and Purpose Cannabidiol has been reported to act as an antagonist at cannabinoid CB 1 receptors. We hypothesized that cannabidiol would inhibit cannabinoid agonist activity through negative allosteric modulation of CB 1 receptors. Experimental Approach Internalization of CB 1 receptors, arrestin2 recruitment, and PLCβ3 and ERK1/2 phosphorylation, were quantified in HEK 293A cells heterologously expressing CB 1 receptors and in the ST Hdh Q7/Q7 cell model of striatal neurons endogenously expressing CB 1 receptors. Cells were treated with 2‐arachidonylglycerol or Δ 9 ‐tetrahydrocannabinol alone and in combination with different concentrations of cannabidiol. Key Results Cannabidiol reduced the efficacy and potency of 2‐arachidonylglycerol and Δ 9 ‐tetrahydrocannabinol on PLCβ3‐ and ERK1/2‐dependent signalling in cells heterologously (HEK 293A) or endogenously (ST Hdh Q7/Q7 ) expressing CB 1 receptors. By reducing arrestin2 recruitment to CB 1 receptors, cannabidiol treatment prevented internalization of these receptors. The allosteric activity of cannabidiol depended upon polar residues being present at positions 98 and 107 in the extracellular amino terminus of the CB 1 receptor. Conclusions and Implications Cannabidiol behaved as a non‐competitive negative allosteric modulator of CB 1 receptors. Allosteric modulation, in conjunction with effects not mediated by CB 1 receptors, may explain the in vivo effects of cannabidiol. Allosteric modulators of CB 1 receptors have the potential to treat CNS and peripheral disorders while avoiding the adverse effects associated with orthosteric agonism or antagonism of these receptors.