Application of the acetylcholinesterase inhibitor physostigmine to conventional hippocampal slices caused a significant reduction of field EPSPs elicited by single pulse stimulation to the medial perforant path. Similar but smaller effects were obtained in the lateral perforant path and other excitatory pathways within hippocampus. The reductions were blocked by atropine, not accompanied by evident changes in the EPSP waveform, and eliminated by lesions to the cholinergic septo-hippocampal projections. Antidromic responses to mossy fiber stimulation, recorded in stratum granulosum, were not affected by the drug. However, paired pulse facilitation was reliably increased, indicating that the depressed synaptic responses were secondary to reductions in transmitter release. The absence of cholinergic axo-axonic connections in the molecular layer suggests that physostigmine reduces pre-synaptic release by increasing retrograde signaling from the granule cells. In accord with this, an antagonist of the CB1 cannabinoid receptor eliminated the effects of physostigmine on synaptic responses, while an antagonist of the presynaptically located m2 muscarinic acetylcholine receptor did not. This is in contrast to previously reported effects involving application of cholinergic agonists, in which presynaptic inhibition likely results from direct application of presynaptically located muscarinic receptors. In summary, it is proposed that the cholinergic inputs from the septum to the middle molecular layer modulate, via endocannabinoid release, the potency of the primary excitatory afferent of hippocampus.