We constructed a novel optical indicator for chloride ions by fusing the chloride-sensitive yellow fluorescent protein with the chloride-insensitive cyan fluorescent protein. The ratio of FRET-dependent emission of these fluorophores varied in proportion to the concentration of Cl and was used to measure intracellular chloride concentration ([Cl-]i) in cultured hippocampal neurons. [Cl-]i decreased during neuronal development, consistent with the shift from excitation to inhibition during maturation of GABAergic synapses. Focal activation of GABAA receptors caused large changes in [Cl-]i that could underlie use-dependent depression of GABA-dependent synaptic transmission. GABA-induced changes in somatic [Cl-]i spread into dendrites, suggesting that [Cl-]i can signal the location of synaptic activity. This genetically encoded indicator will permit new approaches ranging from high-throughput drug screening to direct recordings of synaptic Cl- signals in vivo.