Gamma frequency oscillations (30-100 Hz) are prominent in the hippocampal EEG signal during active network states. An intrahippocampal gamma generator has been identified in the CA3 region. To understand the mechanism of oscillation generation, both the rhythm and the current generators must be identified. While earlier work has elucidated mechanisms of rhythm generation, little attention has been given to identifying the CA3 gamma current generator. Here, we aimed to identify a current generator underlying cholinergically induced gamma frequency oscillations in vitro. To this end, we analysed the instantaneous fluctuations in the wavelet amplitude of the field potential oscillation recorded in the stratum pyramidale, and concomitantly recorded action potentials and synaptic input in individual, anatomically identified neurons. The data revealed that perisomatic inhibitory currents in pyramidal cells generated the majority of the field potential. Pyramidal cell action currents also contributed to the field. In contrast, we found no evidence that excitatory currents contribute significantly to the field oscillations in this model. The moment-by-moment analysis of the dynamics of the field potential presented here provides insight into the distinct contributions of synaptic and action currents to the EEG signal and sheds light on the changing balance of excitation and inhibition during cholinergically induced gamma frequency oscillations.