Dynamic mechanical allodynia is a widespread and intractable symptom of neuropathic pain for which there is a lack of effective therapy. During tactile allodynia, activation of the sensory fibers which normally detect touch elicits pain. Here we provide a new behavioral investigation into the dynamic component of tactile allodynia that developed in rats after segmental removal of glycine inhibition. Using in vivo electrophysiological recordings, we show that in this condition innocuous mechanical stimuli could activate superficial dorsal horn nociceptive specific neurons. These neurons do not normally respond to touch. We anatomically show that the activation was mediated through a local circuit involving neurons expressing the gamma isoform of protein kinase C (PKCγ). Selective inhibition of PKCγ as well as selective blockade of glutamate NMDA receptors in the superficial dorsal horn prevented both activation of the circuit and allodynia. Thus, our data demonstrates that a normally inactive circuit in the dorsal horn can be recruited to convert touch into pain. It also provides evidence that glycine inhibitory dysfunction gates tactile input to nociceptive specific neurons through PKCγ-dependent activation of a local, excitatory, NMDA receptor-dependent, circuit. As a consequence of these findings, we suggest that pharmacological inhibition of PKCγ might provide a new tool for alleviating allodynia in the clinical setting.