Acetylcholine (ACh) influences attention, short-term memory, and sleep/waking transitions, through its modulatory influence on cortical neurons. It has been proposed that behavioral state changes mediated by ACh result from its selective effects on the intrinsic membrane properties of diverse cortical inhibitory interneuron classes. ACh has been widely shown to reduce the strength of excitatory (glutamatergic) synapses. But past studies using extracellular stimulation have not been able to examine the effects of ACh on local cortical connections important for shaping sensory processing. Here, using dual intracellular recording in slices of rat somatosensory cortex, we show that reduction of local excitatory input to inhibitory neurons by ACh is coupled to differences in the underlying short-term synaptic plasticity (STP). In synapses with short-term depression, where successive evoked excitatory postsynaptic potentials (EPSPs; >5 Hz) usually diminish in strength (short-term depression), cholinergic agonist (5-10 microM carbachol (CCh)) reduced the amplitude of the first EPSP in an evoked train, but CCh's net effect on subsequent EPSPs rapidly diminished. In synapses where successive EPSPs increased in strength (facilitation), the effect of CCh on later EPSPs in an evoked train became progressively greater. The effect of CCh on both depressing and facilitating synapses was blocked by the muscarinic antagonist, 1-5 microM atropine. It is suggested that selective influence on STP contributes fundamentally to cholinergic "switching" between cortical rhythms that underlie different behavioral states.