The normal development of the central nervous system is regulated by glia. In this regard, we have reported that astrocytes, stimulated by epidermal growth factor or transforming growth factor alpha, suppress the biochemical differentiation of rat medial septal cholinergic neurons in vitro, as evidenced by a decrease in choline acetyltransferase activity. In this study, we found that, in contrast to astrocytes, microglia enhance rather than suppress this aspect of cholinergic cell expression. When in excess, microglia can revert the effects of epidermal growth factor on the septal cholinergic neurons without altering the astroglial proliferative response to this growth factor. In the absence of growth factors or other glial cell types, microglia increase choline acetyltransferase activity above control levels and thus, may be a source of cholinergic differentiating activity. The increase in enzyme activity induced by microglia is rapid in onset, detected as early as 2 h after their addition to the septal neurons and maintained up to six or seven days in vitro. Furthermore, in the absence or presence of other glial cell types, microglia also influence septal GABAergic neurons by significantly increasing glutamate decarboxylase activity. As microglia affect neither septal cholinergic nor GABAergic neuronal cell survival, they appear to enhance the biochemical differentiation of these two neuronal cell types. Specific immunoneutralizing antibodies were used to identify the microglia-derived factors affecting these two neuronal types. In this regard, we found that the microglia-derived cholinergic differentiating activity is significantly suppressed by antibodies raised against interleukin-3. Furthermore, interleukin-3 was detected in both conditioned media and cell homogenates from septal neuronal-microglial co-cultures by western blotting. Finally, although basic fibroblast growth factor and interleukin-3 significantly increase septal glutamate decarboxylase activity, neither appears to be implicated in the GABAergic cell response to the microglia. In conclusion, these results demonstrate that microglia can enhance the biochemical differentiation of developing cholinergic and GABAergic neurons in vitro.