Estrogen is thought to enhance cognitive functions by modulating the production of acetylcholine in basal forebrain neurons; a system that projects to the cerebral cortex and hippocampus and plays a central role in learning and memory. To elucidate the mechanism of estrogen action in the cholinergic system, we utilized a combined in vivo autoradiography/immunocytochemistry technique to evaluate the distribution of estrogen binding sites in cholinergic neurons of the rat basal forebrain. The results of these studies revealed that a portion of the cholinergic neurons in the medial septum (41%), vertical (32%) and horizontal (29%) limbs of the diagonal band and in the substantia innominata/nucleus basalis (4%) contained estrogen receptors. Through the use of a double-label in situ hybridization/immunocytochemistry technique we have shown that estrogen receptor-alpha is the predominant estrogen receptor in the cholinergic neurons, with only a few cells containing estrogen receptor-beta. The results of these studies provide evidence that biologically active estrogen receptors are present in the basal forebrain cholinergic neurons of the adult rat brain, with estrogen receptor-alpha being the predominant receptor subtype. The demonstration that cholinergic neurons contain estrogen receptors is consistent with the possibility that estrogen directly modulates the activity of cholinergic neurons in rats and may provide insight as to how estrogen improves cognitive functions in women.