Rapid activation of nicotinic acetylcholine receptors (nAChRs) at various anatomical and cellular locations in the hippocampus differentially modulates the operation of hippocampal circuits. However, it is largely unknown how the continued presence of nicotine affects the normal operation of hippocampal circuits. Here, we used single and dual whole-cell recordings to address this question. We found that horizontally oriented interneurons in the stratum oriens/alveus continuously discharged action potentials in the presence of nicotine. In these interneurons, bath application of nicotine produced slow inward currents that were well maintained and inhibited by the non-alpha 7 antagonist dihydro-beta-erythroidine. Single-cell reverse transcription-polymerase chain reaction analysis showed that nicotine-responding interneurons were consistently positive for the alpha2 subunit mRNA. These observations suggest that in the presence of nicotine, a subset of interneurons in the stratum oriens/alveus are continuously excited due to the sustained activation of alpha2* nAChRs. These interneurons were synaptically connected to pyramidal cells, and nicotine increased inhibitory baseline currents at the synapses and suppressed phasic inhibition at the same synapses. Nicotine-induced inhibitory activity increased background noise and masked small phasic inhibition in pyramidal cells, originating from other interneurons in the stratum radiatum. Thus, the continued presence of nicotine alters the normal operation of hippocampal circuits by gating inhibitory circuits through activating a non-desensitizing alpha2 nAChR subtype on a distinct population of interneurons.