The α7 subtype of the nicotinic acetylcholine receptor (α7 nAChR) is prominently expressed in the hippocampus where it is thought to play a role in the regulation of cognitive function. In this study, we have investigated the effects of 5-hydroxyindole (5-HI), a positive modulator of the α7 nAChR, on GABAergic activity in hippocampal CA1 stratum radiatum interneurons in acute rat brain slices. Superfusion of 5-HI (100 μM) increased the mean frequency and amplitude of spontaneous IPSCs (sIPSCs). The potentiation was occluded by pretreatment of slices with: (1) a high concentration of the broad-spectrum agonist nicotine to desensitize the α7 receptor, (2) an α7 nAChR antagonist, and (3) tetrodotoxin to block action potential firing. These results indicate that facilitation by 5-HI was mediated by the α7 nAChR and required neuronal excitation. In contrast, 5-HI had no effect on sIPSCs recorded in hippocampal slices from younger animals, even though the expression of functional α7 nAChRs was confirmed by agonist application experiments. In these slices, 5-HI only enhanced sIPSCs after pretreatment with the acetylcholinesterase inhibitor Bw284c51. Taken together, our results suggest that 5-HI facilitates GABAergic transmission via excitation of the α7 nAChR, and that this effect requires the presence of the endogenous agonist ACh in the extracellular environment of the receptor.