Cholinergic neurotransmission and insulin signaling in cognitive areas, such as the prefrontal cortex (PFC), play a key role in regulating learning and memory. However, the cellular mechanisms by which this regulation occurs are unclear. Because GABAergic inhibition in the PFC controls the timing of neuronal activity during cognitive operations, we examined the potential regulation of GABA transmission by cholinergic and insulin signaling in PFC pyramidal neurons. Activation of muscarinic acetylcholine receptors (mAChRs) with carbachol produced an enhancement of GABA(A) receptor currents in acutely dissociated cells after a short treatment with insulin. Inhibiting phosphoinositide-3 kinase (PI3K), a downstream target of insulin signaling, eliminated this effect as well as the carbachol-induced enhancement of GABAergic miniature IPSC amplitudes in PFC slices. The muscarinic potentiation of GABA(A) currents was blocked by PKC inhibitors, broad-spectrum protein tyrosine kinase inhibitors, and specific inhibitors of the nonreceptor tyrosine kinase Src. Additionally, muscarinic receptors in PFC slices activated PKC and the focal adhesion kinase Pyk2 (a potential molecular link between PKC and Src) in a PI3K-dependent manner. Together, our results show that mAChR activation in PFC pyramidal neurons enhances GABA(A) receptor functions through a PKC-dependent, Src-mediated signaling cascade that is gated by an insulin/PI3K pathway. Given the significance of GABAergic transmission in regulating PFC functions, our results provide a novel mechanism for understanding the role of cholinergic systems and insulin signaling in learning and memory.