Neurotransmitter spillover represents a form of neural transmission not restricted to morphologically defined synaptic connections. Communication between climbing fibers (CFs) and molecular layer interneurons (MLIs) in the cerebellum is mediated exclusively by glutamate spillover. Here, we show how CF stimulation functionally segregates MLIs based on their location relative to glutamate release. Excitation of MLIs that reside within the domain of spillover diffusion coordinates inhibition of MLIs outside the diffusion limit. CF excitation of MLIs is dependent on extrasynaptic NMDA receptors that enhance the spatial and temporal spread of CF signaling. Activity mediated by functionally segregated MLIs converges onto neighboring Purkinje cells (PCs) to generate a long-lasting biphasic change in inhibition. These data demonstrate how glutamate release from single CFs modulates excitability of neighboring PCs, thus expanding the influence of CFs on cerebellar cortical activity in a manner not predicted by anatomical connectivity.