Tinnitus is a clinical condition defined by hearing a sound in the absence of an objective source. Early experiments in animal models have suggested that tinnitus stems from an alteration of processing in the auditory system. However, translating these results to humans has proven challenging. One limiting factor has been the insufficient spatial resolution of non-invasive measurement techniques to investigate responses in subcortical auditory nuclei, like the inferior colliculus and the medial geniculate body (MGB). Here we employed ultra-high field functional magnetic resonance imaging (UHF-fMRI) at 7 Tesla to investigate the frequency-specific processing in sub-cortical and cortical regions in a cohort of six tinnitus patients and six hearing loss matched controls. We used task-based fMRI to perform tonotopic mapping and compared the magnitude and tuning of frequency-specific responses between the two groups. Additionally, we used resting-state fMRI to investigate the functional connectivity. Our results indicate frequency-unspecific reductions in the selectivity of frequency tuning that start at the level of the MGB and continue in the auditory cortex, as well as reduced thalamocortical and cortico-cortical connectivity with tinnitus. These findings suggest that tinnitus may be associated with reduced inhibition in the auditory pathway, potentially leading to increased neural noise and reduced functional connectivity. Moreover, these results indicate the relevance of high spatial resolution UHF-fMRI for the investigation of the role of sub-cortical auditory regions in tinnitus.