By using the combined Golgi/electron microscopy (EM) technique and postembedding immunocytochemistry for gamma-aminobutyric acid (GABA), we describe a novel type of local circuit neuron in the rat fascia dentata that gives rise to an axon profusely ramifying in the dentate molecular layer. The relatively small ovoid cell body (long axis 12-15 microns) is located directly underneath the granular layer. From both poles of the cell body dendritic processes emerge that enter the molecular layer and hilar region, respectively. The apical dendrites traverse the granular layer, invade the molecular layer, and branch in the same way as granule cell dendrites. Some branches reach the hippocampal fissure. Thus, the apical dendrites of these neurons may receive a similar input pattern as the granule cells. The dendrites are smooth, occasionally bearing varicosities. A few spines are regularly observed. The axon originates from the apical dendrite and traverses the molecular layer horizontally for up to 500 microns. It gives off numerous collaterals that are distributed throughout the entire width of the molecular layer and only rarely enter the granule cell layer. Electron microscopy of the cell body of gold-toned neurons revealed the well-known fine-structural characteristics of nonpyramidal neurons, i.e., an indented nucleus with nuclear inclusions and large aggregations of endoplasmic reticulum. Apical as well as basal dendrites are densely covered with presynaptic boutons, mainly forming asymmetric synapses. The axon terminals of these cells form symmetric synapses with dendritic shafts and, to a lesser extent, with spines. These symmetric synapses, together with the results of our GABA postembedding immunocytochemical study, suggest that this cell is a GABAergic inhibitory neuron that almost exclusively innervates the dentate molecular layer. Together with data from the literature on dentate axoaxonic cells (which innervate the axon initial segments of the granule cells) and GABAergic basket cells (which innervate the granule cell somata and proximal dendrites in the granular layer), the present results indicate that there is a lamination of the GABAergic innervation of the fascia dentata corresponding to the well-known segregated termination of entorhinal and commissural afferents to this region.