Cholinergic [acetylcholine (ACh)] axons from the basal forebrain innervate olfactory bulb glomeruli, the initial site of synaptic integration in the olfactory system. Both nicotinic acetylcholine receptors (nAChRs) and muscarinic acetylcholine receptors (mAChRs) are expressed in glomeruli. The activation of nAChRs directly excites both mitral/tufted cells (MTCs) and external tufted cells (ETCs), the two major excitatory neurons that transmit glomerular output. The functional roles of mAChRs in glomerular circuits are unknown. We show that the restricted glomerular application of ACh causes rapid, brief nAChR-mediated excitation of both MTCs and ETCs in the mouse olfactory bulb. This excitation is followed by mAChR-mediated inhibition, which is blocked by GABAA receptor antagonists, indicating the engagement of periglomerular cells (PGCs) and/or short axon cells (SACs), the two major glomerular inhibitory neurons. Indeed, selective activation of glomerular mAChRs, with ionotropic GluRs and nAChRs blocked, increased IPSCs in MTCs and ETCs, indicating that mAChRs recruit glomerular inhibitory circuits. Selective activation of glomerular mAChRs in the presence of tetrodotoxin increased IPSCs in all glomerular neurons, indicating action potential-independent enhancement of GABA release from PGC and/or SAC dendrodendritic synapses. mAChR-mediated enhancement of GABA release also presynaptically suppressed the first synapse of the olfactory system via GABAB receptors on sensory terminals. Together, these results indicate that cholinergic modulation of glomerular circuits is biphasic, involving an initial excitation of MTC/ETCs mediated by nAChRs followed by inhibition mediated directly by mAChRs on PGCs/SACs. This may phasically enhance the sensitivity of glomerular outputs to odorants, an action that is consistent with recent in vivo findings.