Spontaneous nicotinic cholinergic activity is widespread in the developing nervous system. One of the major components mediating this activity is the nicotinic acetylcholine receptor with alpha7 subunits (alpha7-nAChR) and high relative calcium permeability. We recently reported that alpha7-nAChRs co-localize in part with GABA(A) receptors during development, and the sites become co-innervated by cholinergic and GABAergic terminals. Patch-clamp recording either from embryonic chick ciliary ganglion neurons or from early postnatal mouse hippocampal interneurons reveals that alpha7-nAChR activation can impose a rapid and reversible decrease in GABA(A) receptor responses. The effect extends to GABAergic synaptic currents, and depends on intracellular calcium, calcium/calmodulin-dependent protein kinase II, and MAP kinase in the postsynaptic cell. Over the longer term, nicotinic activity has a more profound effect: it determines the time during development when GABAergic signaling converts from excitation to inhibition. It does this by changing the pattern of chloride transporters to establish the mature chloride gradient required for inhibitory GABAergic responses. The excitatory phase of GABAergic signaling is critical for proper development and integration of neurons into circuits. By driving the conversion of GABAergic signaling, nicotinic activity not only terminates one set of developmental instructions, but also initiates another by collaborating with GABAergic inhibition to impose new instructions. The results reveal a multi-layered pattern of activity-dependent controls in development and indicate the significance of nicotinic signaling in shaping these events.