Perigeniculate neurons form an interactive sheet of cells that inhibit one another as well as thalamocortical neurons in the dorsal lateral geniculate nucleus (LGNd). The inhibitory influence of the GABAergic neurons of the perigeniculate nucleus (PGN) onto other PGN neurons was examined with intracellular recordings in vitro. Intracellular recordings from PGN neurons during the generation of spindle waves revealed barrages of EPSPs and IPSPs. The excitation of local regions of the PGN with the local application of glutamate resulted in activation of IPSPs in neighboring PGN neurons. These IPSPs displayed an average reversal potential of -77 mV and were blocked by application of bicuculline methiodide or picrotoxin, indicating that they are mediated by GABAA receptors. In the presence of GABAA receptor blockade, the activation of PGN neurons with glutamate could result in slow IPSPs that were mediated by GABAB receptors in a subset (40%) of cells. Similarly, application of specific agonists muscimol and baclofen demonstrated that PGN neurons possess both functional GABAA and GABAB receptors. Examination of the axon arbors of biocytin-filled PGN neurons often revealed the presence of beaded axon collaterals within the PGN, suggesting that this may be an anatomical substrate for PGN to PGN inhibition. Functionally, activation of inhibition between PGN neurons could result in a shortening or a complete abolition of the low threshold Ca2+ spike or an inhibition of tonic discharge. We suggest that the mutual inhibition between PGN neurons forms a mechanism by which the excitability of these cells is tightly controlled. The activation of a point within the PGN may result in the inhibition of neighboring PGN neurons. This may be reflected in the LGNd as a center of inhibition surrounded by an annulus of disinhibition, thus forming a "center-surround" mechanism for thalamic function.