It has long been recognized that muscarinic acetylcholine receptors (mAChRs) are crucial for the control of cognitive processes, and drugs that activate mAChRs are helpful in ameliorating cognitive deficits of Alzheimer's disease (AD). On the other hand, GABAergic transmission in prefrontal cortex (PFC) plays a key role in "working memory" via controlling the timing of neuronal activity during cognitive operations. To test whether the muscarinic and gamma-aminobutyric acid (GABA) system are interconnected in normal cognition and dementia, we examined the muscarinic regulation of GABAergic transmission in PFC of an animal model of AD. Transgenic mice overexpressing a mutant gene for beta-amyloid precursor protein (APP) show behavioral and histopathological abnormalities resembling AD and, therefore, were used as an AD model. Application of the mAChR agonist carbachol significantly increased the spontaneous inhibitory postsynaptic current (sIPSC) frequency and amplitude in PFC pyramidal neurons from wild-type animals. In contrast, carbachol failed to increase the sIPSC amplitude in APP transgenic mice, whereas the carbachol-induced increase of the sIPSC frequency was not significantly changed in these mutants. Similar results were obtained in rat PFC slices pretreated with the beta-amyloid peptide (Abeta). Inhibiting protein kinase C (PKC) blocked the carbachol enhancement of sIPSC amplitudes, implicating the PKC dependence of this mAChR effect. In APP transgenic mice, carbachol failed to activate PKC despite the apparently normal expression of mAChRs. These results show that the muscarinic regulation of GABA transmission is impaired in the AD model, probably due to the Abeta-mediated interference of mAChR activation of PKC.