Previous studies from our laboratory showed that ethanol enhances muscarinic excitatory responses in rat hippocampal neurons in vivo and, like muscarinic agonists, reduces the M-current (IM) in these neurons in vitro. Therefore, we used extracellular and intracellular recording techniques in the hippocampal slice preparation to examine the mechanisms underlying this ethanol-muscarinic interaction. Surprisingly, superfusion or local application of low concentrations of acetylcholine (ACh), carbachol (CCh) or muscarine reduced the amplitudes of CA1 field potentials evoked by stratum radiatum (SR) stimulation. This effect was blocked by 1 microM atropine but was independent of the method of agonist application, the site of application or the SR stimulus paradigm. In intracellular and extracellular single unit recordings, cholinergic depressions of field potentials were correlated with: (1) depolarization of pyramidal neurons; (2) spike discharge increases; (3) reduction of amplitudes of postsynaptic potentials and (4) reduction of late afterhyperpolarizations (AHPs). Superfusion of low ethanol concentrations (11-22 mM) alone had little effect on SR-evoked field potentials but enhanced (by 10-90%) both the depressions of evoked field potentials and depolarizations elicited by the muscarinic agonists. Ethanol (22-44 mM) also enhanced both the amplitude and duration of the muscarinic slow excitatory postsynaptic potentials (sEPSPs) recorded intracellularly in CA1 and CA3 neurons. This effect was enhanced by eserine and blocked by atropine, verifying involvement of muscarinic receptors. These results suggest that: (1) caution be used in interpreting results of field potential studies regarding drug-induced excitability changes; and (2) ethanol in just-intoxicating concentrations enhances endogenous muscarinic synaptic transmission as well as responses to exogenous muscarinic agonists.