Initial theories of rapid eye movement (REM) sleep generation posited that induction of the state required activation of the pontine subceruleus (SubC) by cholinergic inputs. Although the capacity of cholinergic neurotransmission to contribute to REM sleep generation has been established, the role of cholinergic inputs in the generation of REM sleep is ultimately undetermined as the critical test of this hypothesis (local blockade of SubC acetylcholine receptors) has not been rigorously performed. We used bilateral microdialysis in freely behaving rats (n = 32), instrumented for electroencephalographic and electromyographic recording, to locally manipulate neurotransmission in the SubC with select drugs. As predicted, combined microperfusion of D-AP5 (glutamate receptor antagonist) and muscimol (GABAA receptor agonist) in the SubC virtually eliminated REM sleep. However, REM sleep was not reduced by scopolamine microperfusion in this same region, at a concentration capable of blocking the effects of cholinergic receptor stimulation. This result suggests that transmission of REM sleep drive to the SubC is acetylcholine-independent. Although SubC cholinergic inputs are not majorly involved in REM sleep generation, they may perform a minor function in the reinforcement of transitions into REM sleep, as evidenced by increases in non-REM-to-REM sleep transition duration and failure rate during cholinergic receptor blockade. Cholinergic receptor antagonism also attenuated the normal increase in hippocampal θ oscillations that characterize REM sleep. Using computational modeling, we show that our in vivo results are consistent with a mutually excitatory interaction between the SubC and cholinergic neurons where, importantly, cholinergic neuron activation is gated by SubC activity.