The basal forebrain cholinergic system is widely assumed to control cortical functions via non-synaptic transmission of a single neurotransmitter. Yet, we find that mouse hippocampal cholinergic terminals invariably establish GABAergic synapses, and their cholinergic vesicles dock at those synapses only. We demonstrate that these synapses do not co-release but co-transmit GABA and acetylcholine via different vesicles, whose release is triggered by distinct calcium channels. This co-transmission evokes composite postsynaptic potentials, which are mutually cross-regulated by presynaptic autoreceptors. Although postsynaptic cholinergic receptor distribution cannot be investigated, their response latencies suggest a focal, intra- and/or peri-synaptic localisation, while GABAA receptors are detected intra-synaptically. The GABAergic component alone effectively suppresses hippocampal sharp wave-ripples and epileptiform activity. Therefore, the differentially regulated GABAergic and cholinergic co-transmission suggests a hitherto unrecognised level of control over cortical states. This novel model of hippocampal cholinergic neurotransmission may lead to alternative pharmacotherapies after cholinergic deinnervation seen in neurodegenerative disorders.