Although hippocampal theta oscillations represent a prime example of temporal coding in the mammalian brain, little is known about the specific biophysical mechanisms. Intracellular recordings support a particular abstract oscillatory interference model of hippocampal theta activity, the soma-dendrite interference model. To gain insight into the cellular and circuit level mechanisms of theta activity, we implemented a similar form of interference using the actual hippocampal network in mice in vitro. We found that pairing increasing levels of phasic dendritic excitation with phasic stimulation of perisomatic projecting inhibitory interneurons induced a somatic polarization and action potential timing profile that reproduced most common features. Alterations in the temporal profile of inhibition were required to fully capture all features. These data suggest that theta-related place cell activity is generated through an interaction between a phasic dendritic excitation and a phasic perisomatic shunting inhibition delivered by interneurons, a subset of which undergo activity-dependent presynaptic modulation.