The effects of acetylcholine on both pyramidal neurons and interneurons in the area CA1 of the rat hippocampus were examined, using intracellular recording techniques in an in vitro slice preparation. In current-clamp mode, fast local application of acetylcholine (ACh) to the soma of inhibitory interneurons in stratum radiatum resulted in depolarization and rapid firing of action potentials. Under voltage-clamp, ACh produced fast, rapidly desensitizing inward currents that were insensitive to atropine but that were blocked by nanomolar concentrations of the nicotinic alpha7 receptor-selective antagonists alpha-bungarotoxin (alphaBgTx) and methyllycaconitine. Nicotinic receptor antagonists that are not selective for alpha7-containing receptors had little (mecamylamine) or no effect (dihydro-beta-erythroidine) on the ACh-induced currents. Glutamate receptor antagonists had no effect on the ACh-evoked response, indicating that the current was not mediated by presynaptic facilitation of glutamate release. However, the current could be desensitized almost completely by bath superfusion with 100 nM nicotine. In contrast to those actions on interneurons, application of ACh to the soma of CA1 pyramidal cells did not produce a detectable current. Radioligand-binding experiments with [125I]-alphaBgTx demonstrated that stratum radiatum interneurons express alpha7-containing nAChRs, and in situ hybridization revealed significant amounts of alpha7 mRNA. CA1 pyramidal cells did not show specific binding of [125I]-alphaBgTx and only low levels of alpha7 mRNA. These results suggest that, in addition to their proposed presynaptic role in modulating transmitter release, alpha7-containing nAChRs also may play a postsynaptic role in the excitation of hippocampal interneurons. By desensitizing these receptors, nicotine may disrupt this action and indirectly excite pyramidal neurons by reducing GABAergic inhibition.