We have developed a biophysical model of a pair of reciprocally inhibitory interneurons comprising an elemental heartbeat oscillator of the leech. We incorporate various intrinsic and synaptic ionic currents based on voltage-clamp data. Synaptic transmission between the interneurons consists of both a graded and a spike-mediated component. By using maximal conductances as parameters, we have constructed a canonical model whose activity appears close to the real neurons. Oscillations in the model arise from interactions between synaptic and intrinsic currents. The inhibitory synaptic currents hyperpolarize the cell, resulting in activation of a hyperpolarization-activated inward current Ih and the removal of inactivation from regenerative inward currents. These inward currents depolarize the cell to produce spiking and inhibit the opposite cell. Spike-mediated IPSPs in the inhibited neuron cause inactivation of low-threshold Ca++ currents that are responsible for generating the graded synaptic inhibition in the opposite cell. Thus, although the model cells can potentially generate large graded IPSPs, synaptic inhibition during canonical oscillations is dominated by the spike-mediated component.