The mammalian olfactory bulb receives multiple modulatory inputs, including a cholinergic input from the basal forebrain. Understanding the functional roles played by the cholinergic input requires an understanding of the cellular mechanisms it modulates. In an in vitro olfactory bulb slice preparation we demonstrate cholinergic muscarinic modulation of glutamate release onto granule cells that results in gamma-aminobutyric acid (GABA) release onto mitral/tufted cells. We demonstrate that the broad-spectrum cholinergic agonist carbachol triggers glutamate release from mitral/tufted cells that activates both AMPA and NMDA receptors on granule cells. Activation of the granule cell glutamate receptors leads to calcium influx through voltage-gated calcium channels, resulting in spike-independent, asynchronous GABA release at reciprocal dendrodendritic synapses that granule cells form with mitral/tufted cells. This cholinergic modulation of glutamate release persists through much of postnatal bulbar development, suggesting a functional role for cholinergic inputs from the basal forebrain in bulbar processing of olfactory inputs and possibly in postnatal development of the olfactory bulb.