The vast majority of synaptic connections onto neurons in the cerebral cortex arise from other cortical neurons, both excitatory and inhibitory, forming local and distant 'recurrent' networks. Although this is a basic theme of cortical organization, its study has been limited largely to theoretical investigations, which predict that local recurrent networks show a proportionality or balance between recurrent excitation and inhibition, allowing the generation of stable periods of activity. This recurrent activity might underlie such diverse operations as short-term memory, the modulation of neuronal excitability with attention, and the generation of spontaneous activity during sleep. Here we show that local cortical circuits do indeed operate through a proportional balance of excitation and inhibition generated through local recurrent connections, and that the operation of such circuits can generate self-sustaining activity that can be turned on and off by synaptic inputs. These results confirm the long-hypothesized role of recurrent activity as a basic operation of the cerebral cortex.