The combination of transcranial magnetic stimulation (TMS) and electroencephalography (EEG) elegantly probes the excitability and connectivity of the human brain. However, TMS-EEG signals inevitably also contain sensory-evoked responses caused by TMS-associated auditory and somatosensory inputs, constituting a substantial confounding factor. Here we applied our recently established optimized SHAM protocol (Gordon et al., Neuroimage 2021:118708) to disentangle TMS-EEG responses caused by TMS vs. sensory input. One unresolved question is whether these responses superimpose without relevant interaction, a requirement for their disaggregation by the optimized SHAM approach. We applied in 20 healthy subjects a pharmacological intervention using a single oral dose of 20 mg of diazepam, a positive modulator of GABAA receptors. Diazepam decreased the amplitudes of the P60 and P150 components specifically in the ACTIVE TMS and/or the ACTIVE TMS minus SHAM conditions but not in the SHAM condition, pointing to a response caused by TMS. In contrast, diazepam suppressed the amplitude of the N100 component indiscriminately in the ACTIVE TMS and SHAM conditions but not in the ACTIVE TMS minus SHAM condition, pointing to a response caused by sensory input. Moreover, diazepam suppressed the beta-band response observed in the motor cortex specifically after ACTIVE TMS and ACTIVE TMS minus SHAM. These findings demonstrate a lack of interaction of TMS-EEG responses caused by TMS vs. sensory input and validate optimized SHAM-controlled TMS-EEG as an appropriate approach to untangle these TMS-EEG responses. This knowledge will enable the proficient use of TMS-EEG to probe the physiology of the human cortex. KEY POINTS: Optimized SHAM disentangles TMS-EEG responses caused by TMS vs. sensory input. Diazepam differentially modulates TMS-EEG responses caused by TMS vs. sensory input. Diazepam modulation of P60 and P150 indicate TMS-EEG responses caused by TMS. Diazepam modulation of N100 indicate a TMS-EEG response caused by sensory input.