Hypothalamic fibers containing the wake-promoting peptides, hypocretins (Hcrts) or orexins, provide a dense innervation to the medial septum-diagonal band of Broca (MSDB), a sleep-associated brain region that has been suggested to show intense axonal degeneration in canine narcoleptics. The MSDB, via its cholinergic and GABAergic projections to the hippocampus, controls the hippocampal theta rhythm and associated learning and memory functions. Neurons of the MSDB express very high levels of the Hcrt receptor 2, which is mutated in canine narcoleptics. In the present study, we investigated the electrophysiological effects of Hcrt peptides on septohippocampal cholinergic neurons that were identified in living brain slices of the MSDB using a selective fluorescent marker. Hcrt activation of septohippocampal cholinergic neurons was reversible, reproducible, and concentration dependent and mediated via a direct postsynaptic mechanism. Both Hcrt1 and Hcrt2 activated septohippocampal cholinergic neurons with similar EC(50) values. The Hcrt effect was dependent on external Na(+), reduced by external Ba(2+), and also reduced in recordings with CsCl-containing electrodes, suggesting a dual underlying ionic mechanism that involved inhibition of a K(+) current, presumably an inward rectifier, and a Na(+)-dependent component. The Na(+) component was dependent on internal Ca(2+), blocked by replacing external Na(+) with Li(+), and also blocked by bath-applied Ni(2+) and KB-R7943, suggesting involvement of the Na(+)-Ca(2+) exchanger. Using double-immunolabeling studies at light and ultrastructural levels, we also provide definitive evidence for a hypocretin innervation of cholinergic neurons. Thus Hcrt effects within the septum should increase hippocampal acetylcholine release and thereby promote hippocampal arousal.