Benzodiazepines act mainly at postsynaptic γ-aminobutyric acid type A (GABAA) receptors. In rat neocortical layer V pyramidal neurons, we found that midazolam (MDZ), a benzodiazepine, increases the frequency of GABAergic miniature inhibitory postsynaptic currents (mIPSCs) via insertion of α7 nicotinic acetylcholine receptors (nAChRs) at presynaptic GABAergic boutons. Although nicotine alone had no effect, MDZ plus nicotine dramatically increased mIPSC frequency. Neostigmine, an acetylcholinesterase inhibitor, mimicked the actions of nicotine. MDZ increased the number of α-bungarotoxin–bound boutons that were blocked by protein kinase C (PKC) inhibitors, as revealed by confocal imaging of a neuron-synaptic bouton preparation. Thus, MDZ may induce membrane translocation of α7 nAChRs on GABAergic boutons via activation of PKC, enabling endogenous acetylcholine to increase GABA release. The above actions seem unique to MDZ because neither other benzodiazepines (diazepam and flunitrazepam) nor zolpidem had this effect. The findings reveal both a novel cholinergic modulatory mechanism affecting GABAergic transmission and a novel action of some general anesthetics.