Uptake of L-glutamate into synaptic vesicles is mediated by vesicular glutamate transporters (VGLUTs). Three transporters (VGLUT1-VGLUT3) are expressed in the mammalian CNS, with partial overlapping expression patterns, and VGLUT2 is the most abundantly expressed paralog in the thalamus, midbrain, and brainstem. Previous studies have shown that VGLUT1 is necessary for glutamatergic transmission in the hippocampus, but the role of VGLUT2 in excitatory transmission is unexplored in glutamatergic neurons and in vivo. We examined the electrophysiological and behavioral consequences of loss of either one or both alleles of VGLUT2. We show that targeted deletion of VGLUT2 in mice causes perinatal lethality and a 95% reduction in evoked glutamatergic responses in thalamic neurons, although hippocampal synapses function normally. Behavioral analysis of heterozygous VGLUT2 mice showed unchanged motor function, learning and memory, acute nociception, and inflammatory pain, but acquisition of neuropathic pain, maintenance of conditioned taste aversion, and defensive marble burying were all impaired. Reduction or loss of VGLUT2 in heterozygous and homozygous VGLUT2 knock-outs led to a graded reduction in the amplitude of the postsynaptic response to single-vesicle fusion in thalamic neurons, indicating that the vesicular VGLUT content is critically important for quantal size and demonstrating that VGLUT2-mediated reduction of excitatory drive affects specific forms of sensory processing.