Dopamine neurons are thought to facilitate learning by comparing actual and expected reward. Despite two decades of investigation, little is known about how this comparison is made. To determine how dopamine neurons calculate prediction error, we combined optogenetic manipulations with extracellular recordings in the ventral tegmental area while mice engaged in classical conditioning. Here we demonstrate, by manipulating the temporal expectation of reward, that dopamine neurons perform subtraction, a computation that is ideal for reinforcement learning but rarely observed in the brain. Furthermore, selectively exciting and inhibiting neighbouring GABA (γ-aminobutyric acid) neurons in the ventral tegmental area reveals that these neurons are a source of subtraction: they inhibit dopamine neurons when reward is expected, causally contributing to prediction-error calculations. Finally, bilaterally stimulating ventral tegmental area GABA neurons dramatically reduces anticipatory licking to conditioned odours, consistent with an important role for these neurons in reinforcement learning. Together, our results uncover the arithmetic and local circuitry underlying dopamine prediction errors.