Synaptic localization of gamma-aminobutyric acid type A (GABAA) receptors is a prerequisite for synaptic inhibitory function, but the mechanism by which different receptor subtypes are localized to postsynaptic sites is poorly understood. The gamma 2 subunit and the postsynaptic clustering protein gephyrin are required for synaptic localization and function of major GABA(A) receptor subtypes. We now show that transgenic overexpression of the gamma 3 subunit in yt subunit-deficient mice restores benzodiazepine binding sites, benzodiazepine-modulated whole cell currents, and postsynaptic miniature currents, suggesting the formation of functional, postsynaptic receptors. Moreover, the gamma 3 subunit can substitute for gamma 2 in the formation of GABA(A) receptors that are synaptically clustered and colocalized with gephyrin in vivo. These clusters were formed even in brain regions devoid of endogenous gamma 3 subunit indicating that the factors present for clustering of gamma 2 subunit-containing receptors are sufficient to cluster gamma 3 subunit-containing receptors. The GABA(A) receptor and gephyrin-clustering properties of the ectopic gamma 3 subunit were also observed for the endogenous gamma 3 subunit but only in the absence of the gamma 2 subunit, suggesting that the gamma 3 subunit is at a competitive disadvantage with the gamma 2 subunit for clustering of postsynaptic GABA(A) receptors in wild-type mice.