The basal forebrain and in particular its cholinergic projections to the cerebral cortex have long been implicated in the maintenance of cortical activation. This review summarizes evidence supporting a close link between basal forebrain neuronal activity and the cortical electroencephalogram (EEG). The anatomy of basal forebrain projections and effects of acetylcholine on cortical and thalamic neurons are discussed along with the modulatory inputs to basal forebrain neurons. As both cholinergic and GABAergic basal forebrain neurons project to the cortex, identification of the transmitter specificity of basal forebrain neurons is critical for correlating their activity with the activity of cortical neurons and the EEG. Characteristics of the different basal forebrain neurons from in vitro and in vivo studies are summarized which might make it possible to identify different neuronal types. Recent evidence suggests that basal forebrain neurons activate the cortex not only tonically, as previously shown, but also phasically. Data on basal forebrain neuronal activity are presented, clearly showing that there are strong tonic and phasic correlations between the firing of individual basal forebrain cells and the cortical activity. Close analysis of temporal correlation indicates that changes in basal forebrain neuronal activity precede those in the cortex. While correlational, these data, together with the anatomical and pharmacological findings, suggest that the basal forebrain has an important role in regulating both the tonic and the phasic functioning of the cortex.