The parasubiculum is a major component of the hippocampal formation that receives inputs from the CA1 region, anterior thalamus and medial septum, and which projects primarily to layer II of the entorhinal cortex. Hippocampal theta-frequency (4-12 Hz) EEG activity has been correlated with sensorimotor integration, spatial navigation and memory functions. The present study was aimed at determining if theta is also generated locally within the parasubiculum, versus volume conducted from adjacent structures. In urethane-anaesthetized rats, the phase-reversal of theta activity between superficial and deep layers of the parasubiculum was demonstrated using differential recordings from movable bipolar electrodes that eliminate the influence of volume-conducted activity. Parasubicular theta was abolished by atropine, and was in phase with theta in stratum radiatum/lacunosum-moleculare of the CA1 region. Whole-cell current-clamp recordings in brain slices were then used to determine if parasubicular theta may be generated in part by membrane potential oscillations in layer II neurons. Membrane potential oscillations occurred in most layer II neurons, including four putative interneurons, when cells were held at near-threshold voltages using current injection. The frequency of oscillations increased from 3.2 to 6.1 Hz when bath temperature was raised from 22 to 32°C, and oscillations persisted in the presence of blockers of fast ionotropic glutamatergic and GABAergic synaptic transmission. Oscillations are therefore likely generated by intrinsic, voltage-dependent ionic conductances. These results indicate that theta field activity is generated locally within the parasubiculum, and that intrinsic membrane potential oscillations, synchronized by local inhibitory inputs, may contribute to the generation of this activity.