The mammalian olfactory bulb receives multiple modulatory inputs including a cholinergic input from the basal forebrain. Understanding the functional roles played by the cholinergic input requires an understanding of the cellular mechanisms modulated by it. In an in vitro olfactory bulb slice preparation we demonstrate cholinergic muscarinic modulation of glutamate release onto granule cells that results in GABA release onto mitral cells. We demonstrate that the broad-spectrum cholinergic agonist carbachol triggers glutamate release from mitral cells that activates AMPA as well as NMDA receptors on granule cells. Activation of the granule cell glutamate receptors leads to calcium influx through voltage-gated calcium channels resulting in spike-independent, asynchronous GABA release at reciprocal dendrodendritic synapses that granule cells form with mitral cells. This cholinergic modulation of glutamate release persists through much of postnatal bulbar development suggesting a functional role for cholinergic inputs from the basal forebrain in bulbar processing of olfactory inputs and possibly in postnatal development of the olfactory bulb.