The cholinergic neurons in the septohippocampal projection are implicated in hippocampal functions such as spatial learning and memory. The aim of this study was to examine how septohippocampal cholinergic transmission is modulated by muscarinic inputs and by the neuropeptide galanin, co-localized with acetylcholine (ACh) in septohippocampal cholinergic neurons, and how spatial learning assessed by the Morris water maze test is affected. Muscarinic inputs to the septal area are assumed to be excitatory, whereas galanin is hypothesized to inhibit septohippocampal cholinergic function. To test these hypotheses, compounds were microinjected into the medial septum and hippocampal ACh release was assessed by microdialysis probes in the ventral hippocampus of the rat. Blockade of septal muscarinic transmission by intraseptal scopolamine increased hippocampal ACh release suggesting that septal cholinergic neurons are under tonic inhibition. Stimulation of septal muscarinic receptors by carbachol also increased hippocampal ACh release. Despite this increase, both scopolamine and carbachol tended to impair hippocampus-dependent spatial learning. This finding also suggests a revision of the simplistic notion that an increase in hippocampal ACh may be facilitatory for learning and memory. Galanin infused into the medial septum enhanced hippocampal ACh release and facilitated spatial learning, suggesting that septal galanin, contrary to earlier claims, does not inhibit but excites septohippocampal cholinergic neurons. Galanin receptor stimulation combined with muscarinic blockade in the septal area resulted in an excessive increase of hippocampal ACh release combined with an impairment of spatial learning. This finding suggests that the level of muscarinic activity within the septal area may determine the effects of galanin on hippocampal cognitive functions. In summary, a limited range of cholinergic muscarinic transmission may contribute to optimal hippocampal function, a finding that has important implications for therapeutic approaches in the treatment of disorders of memory function.