The cholinergic drive enhances input processing in attentional and mnemonic context by interacting with the activity of prefrontal-hippocampal networks. During development, acetylcholine modulates neuronal proliferation, differentiation, and synaptic plasticity, yet its contribution to the maturation of cognitive processing resulting from early entrainment of neuronal networks in oscillatory rhythms remains widely unknown. Here we show that cholinergic projections growing into the rat prefrontal cortex (PFC) toward the end of the first postnatal week boost the generation of nested gamma oscillations superimposed on discontinuous spindle bursts by acting on functional muscarinic but not nicotinic receptors. Although electrical stimulation of cholinergic nuclei increased the occurrence of nested gamma spindle bursts by 41%, diminishment of the cholinergic input by either blockade of the receptors or chronic immunotoxic lesion had the opposite effect. This activation of locally generated gamma episodes by direct cholinergic projections to the PFC was accompanied by indirect modulation of underlying spindle bursts via cholinergic control of hippocampal theta activity. With ongoing maturation and switch of network activity from discontinuous bursts to continuous theta-gamma rhythms, accumulating cholinergic projections acting on both muscarinic and nicotinic receptors mediated the transition from high-amplitude slow to low-amplitude fast rhythms in the PFC. By exerting multiple actions on the oscillatory entrainment of developing prefrontal-hippocampal networks, the cholinergic input may refine them for later gating processing in executive and mnemonic tasks.