Neuronal responses to drugs acting on nicotinic cholinergic receptors (nAChRs) were examined in the rat medial septal area by using an in vivo extracellular single-unit recording technique. In the medial septal area, iontophorectically applied nicotine inhibited neuronal activity in 45% of the neurons, but had no effect on the remaining neurons. Dihydro-beta-erythroidine application to neurons in the medial septal area not only blocked nicotine-induced inhibition, but also reduced spontaneous neuronal activity of the neurons. When Mg++ was applied iontophoretically to block presynaptic neurotransmitter release, a significant reduction in spontaneous neural activity also was observed. No further reduction of spontaneous activity by dihydro-beta-erythroidine occurred in the presence of Mg++, suggesting an apparent tonic excitatory input to the majority of neurons in the medial septal area under the control of presynaptic nAChRs. Mg++ abolished the nicotine-induced inhibition in the medial septal area without having an effect on nicotine-induced inhibition in the cerebellum. Thus, these data provide evidence that the inhibitory effects of nicotine in the medial septum are due to an action on presynaptic nAChRs, controlling the release of an inhibitory neurotransmitter. Of the medial septal neurons which showed no response to nicotine, nicotine produced excitation in 21% of the cells after Mg++ application, indicating that nicotine can have a direct action on postsynaptic nAChRs, in addition to its presynaptic action, in the medial septum. Finally, application of the gamma-aminobutyric acid antagonist bicuculline reduced the nicotine-induced inhibition on the majority of medial septal neurons tested, but was without effect on the inhibition produced by nicotine on cerebellar Purkinje neurons. Consequently, it can be concluded that the nicotine-induced inhibition in the medial septum is the result of gamma-aminobutyric acid release due to its action on presynaptic nAChRs present on gamma-aminobutyric acid-containing terminals.