Short-term plasticity (STP) dynamically regulates synaptic strength on the timescale of milliseconds to seconds, playing a critical role in moment-to-moment information processing within neural circuits. Deficits in STP have been implicated in neurological and psychiatric disorders, but its precise contribution to higher cognitive functions and behavioral flexibility remains poorly understood. Here, we address this gap by focusing on synaptotagmin-7 (SYT7), a calcium sensor essential for facilitation---a form of STP in which high-frequency stimulation briefly enhances neurotransmitter release. Using Syt7 knockout (KO) mice, we demonstrate that the loss of facilitation impairs flexible behavior while leaving baseline synaptic properties intact. Specifically, KO mice perform similarly to wild-type (WT) littermates on a short-term memory task, but are impaired when the reward contingency reverses from a “match” rule to a “non-match” rule, suggesting a selective deficit in cognitive flexibility. Neural recordings in frontal cortical regions reveal that KO mice exhibit subregion-specific disruption to low-frequency oscillations evoked by reward outcomes, with a marked reduction in outcome-specific population coding in medial prefrontal cortex. While WT mice show distinct single-neuron and population-level activity patterns for reward and punishment, these differences are absent in KO mice, indicating a disruption in encoding task-relevant outcomes. Finally, we use artificial neural networks to model performance in networks with and without synaptic facilitation. These models recapitulate both the behavioral inflexibility and neural coding impairments observed in KO mice, reinforcing the idea that synaptic facilitation plays a fundamental role in behavioral adaptation and flexible information processing. Our results establish a direct link between STP, prefrontal cortical function, and flexible behavior, while highlighting the computational power of synaptic dynamics in flexibly solving complex cognitive tasks.