The Chrna5 gene encodes the α5 nicotinic acetylcholine receptor subunit, an "accessory" subunit of pentameric nicotinic receptors, that has been shown to play a role in nicotine-related behaviors in rodents and is genetically linked to smoking behavior in humans. Here we have used a BAC transgenic mouse line, α5(GFP), to examine the cellular phenotype, connectivity, and function of α5-expressing neurons. Although the medial habenula (MHb) has been proposed as a site of α5 function, α5(GFP) is not detectable in the MHb, and α5 mRNA is expressed there only at very low levels. However, α5(GFP) is strongly expressed in a subset of neurons in the interpeduncular nucleus (IP), median raphe/paramedian raphe (MnR/PMnR), and dorsal tegmental area (DTg). Double-label fluorescence in situ hybridization reveals that these neurons are exclusively GABAergic. Transgenic and conventional tract tracing show that α5(GFP) neurons in the IP project principally to the MnR/PMnR and DTg/interfascicular dorsal raphe, both areas rich in serotonergic neurons. The α5(GFP) neurons in the IP are located in a region that receives cholinergic fiber inputs from the ventral MHb, and optogenetically assisted circuit mapping demonstrates a monosynaptic connection between these cholinergic neurons and α5(GFP) IP neurons. Selective inhibitors of both α4β2- and α3β4-containing nicotinic receptors were able to reduce nicotine-evoked inward currents in α5(GFP) neurons in the IP, suggesting a mixed nicotinic receptor profile in these cells. Together, these findings show that the α5-GABAergic interneurons form a link from the MHb to serotonergic brain centers, which is likely to mediate some of the behavioral effects of nicotine.