The long trains of theta field activity recorded from the hippocampal formation of urethane-anesthetized rats are thought to be primarily dependent on cholinergic afferents originating in the medial septum/vertical limb of the diagonal band of Broca (MS/vDBB). Recent anatomical studies have revealed the existence of a septal GABA-ergic input to the hippocampal formation which synapses mainly on intrinsic GABA-ergic interneurons. The present work investigated the possibility that some form of interaction between cholinergic and GABA-ergic MS/vDBB inputs might be required for the generation of hippocampal theta field and cellular activities in urethane-anesthetized rats. Reversible inactivation of the MS/vDBB completely abolished theta field and theta-on cell activities, but "released" theta-off cells. The theta field and theta-on cell activities induced by direct intrahippocampal microinfusions of carbachol were also abolished by MS/vDBB inactivation. We speculated that septal suppression was producing two effects: 1) removing excitatory, cholinergic input; and 2) removing inhibitory control of hippocampal GABA-ergic interneurons, thereby increasing the overall level of hippocampal inhibition. Sequential administration of both carbachol and the GABA-A antagonist, bicuculline, resulted in theta-like oscillations similar to those seen in hippocampal slices bath perfused with carbachol alone. Thus, following MS/vDBB inactivation hippocampal GABA-ergic systems are overactive; this enhances intrinsic inhibition and blocks carbachol theta. By reducing the overall level of inhibition in the hippocampus with bicuculline, it is possible to reinstate its oscillatory properties. Conversely, increasing the level of inhibition in the hippocampus (with muscimol) results in the abolishment of theta field activity and the discharges of both theta-on and theta-off cells. Based on these findings we are proposing that cholinergic and GABA-ergic systems originating in the MS/vDBB act synergistically to modulate hippocampal theta. Cholinergic projections provide the afferent excitatory drive for hippocampal theta-on cells and septal GABA-ergic projections act to reduce the overall level of inhibition by inhibiting hippocampal GABA-ergic interneurons (hippocampal theta-off cells). Both activities must be present for the generation of hippocampal theta field and cellular activities. The balance between the cholinergic and GABA-ergic systems may determine whether hippocampal synchrony (theta) or asynchrony (LIA) occurs.