We investigated the effect of acetylcholine release on mouse hippocampal CA1 perisomatically projecting interneurons. Acetylcholine was optogenetically released in hippocampal slices by expressing the excitatory optogenetic protein oChIEF-tdTomato in medial septum/diagonal band of Broca cholinergic neurons using Cre recombinase-dependent adeno-associated virally mediated transfection. The effect of optogenetically released acetylcholine was assessed on interneurons expressing Cre recombinase in vasoactive intestinal peptide (VIP) or parvalbumin (PV) interneurons using whole cell patch clamp methods. Acetylcholine released onto VIP interneurons that innervate pyramidal neuron perisomatic regions (basket cells, BCs) were depolarized by muscarinic receptors. Although PV BCs were also excited by muscarinic receptor activation, they more frequently responded with hyperpolarizing or biphasic responses. Muscarinic receptor activation resulting from ACh release increased the frequency of spontaneous inhibitory postsynaptic currents (sIPSCs) in downstream hippocampal CA1 pyramidal neurons with peak instantaneous frequencies occurring in both the gamma and theta bandwidths. Both PV and VIP BCs contributed to the increased sIPSC frequency in pyramidal neurons and optogenetic suppression of PV or VIP BCs inhibited sIPSCs occurring in the gamma range. Therefore, we propose acetylcholine release in CA1 has a complex effect on CA1 pyramidal neuron output through varying effects on perisomatically projecting interneurons.