The cholinergic innervation of the prefrontal cortex (PFC) plays a pivotal role in regulating executive functions. Muscarinic receptors activated by acetylcholine depolarize pyramidal neurons in the rodent PFC homologue, but the mechanisms mediating this modulation are controversial. To address this question, we studied the responses of layer V rat prelimbic and infralimbic cortex pyramidal neurons to muscarinic receptor stimulation. Consistent with previous findings, M₁ receptor stimulation produced a strong depolarization, leading to tonic firing. Voltage clamp analysis revealed that M1 activation reduced constitutively active inwardly rectifying (Kir2) K⁺ channel currents. Blocking protein kinase C activation or depleting intracellular Ca²⁺ stores did not affect the modulation. However, reversal of the modulation was prevented by the phosphoinositide kinase inhibitor, wortmanin, suggesting the modulation was mediated by depletions of membrane phosphatidylinositol-4,5-bisphosphate (PIP₂). Reduction of Kir2 channel currents by M₁ receptor stimulation significantly increased the temporal summation of excitatory synaptic potentials (EPSPs) evoked by repetitive stimulation of layer I. This action was complimented by M_2/4 receptor mediated presynaptic inhibition of the same terminals. As a consequence of this dual modulation, the responses to a single, isolated afferent volley was reduced but the response to a high frequency afferent burst was potentiated.