The medial septum/diagonal band (MSDB), which gives rise to the septohippocampal pathway, is a critical locus for the mnemonic effects of muscarinic drugs. Infusion of muscarinic cholinergic agonists into the MSDB enhance learning and memory processes both in young and aged rats and produce a continuous theta rhythm in the hippocampus. Intraseptal muscarinic agonists also alleviate the amnesic syndrome produced by systemic administration of muscarinic receptor antagonists. It has been presumed, but not proven, that the cellular mechanisms underlying the effects of muscarinic agonists in the MSDB involve an excitation of septohippocampal cholinergic neurons and a subsequent increase in acetylcholine (ACh) release in the hippocampus. Using a novel fluorescent labeling technique to selectively visualize live septohippocampal cholinergic neurons in rat brain slices, we have found that muscarinic agonists do not excite septohippocampal cholinergic neurons, instead they inhibit a subpopulation of cholinergic neurons. In contrast, unlabeled neurons, confirmed to be noncholinergic, septohippocampal GABA-type neurons using retrograde marking and double-labeling techniques, are profoundly excited by muscarine. Thus, the cognition-enhancing effects of muscarinic drugs in the MSDB cannot be attributed to an increase in hippocampal ACh release. Instead, disinhibitory mechanisms, caused by increased impulse flow in the septohippocampal GABAergic pathway, may underlie the cognition-enhancing effects of muscarinic agonists.