Since the demonstration some 50 years ago of the presence and synthesis of acetylcholine (ACh) in specific neuronal systems within the brain, a wealth of information concerning the organization and functional importance of central cholinergic neurons has emerged through immunohistochemical, neuroanatomical, pharmacological, biochemical and neurophysiological studies. Many of the original theses have proven valid concerning the key structural and functional position of cholinergic neurons within the central reticular core of the brain, where the basic sleep-waking cycle is determined. The two major cholinergic cell groups of this core, one within the pontomesencephalic tegmentum that projects rostrally into the non-specific thalamo-cortical relay system and the other within the basal forebrain that receives input from the brainstem reticular formation and projects in turn as the ventral, extrathalamic relay upon the cerebral cortex, are critically involved in processes of cerebral activation that accompany the states of wakefulness and paradoxical sleep. By interaction with other cell groups, including monoaminergic and GABAergic neurons, and by differential modes of firing, the cholinergic neurons may furthermore shape the responsiveness and activity of the reticular core and thalamo-cortical systems across the sleep-waking cycle.