Acetylcholine (ACh) plays a major role in the processing of sensory inputs. Cholinergic input to the mammalian olfactory bulb modulates odor discrimination and perceptual learning by mechanisms that have yet to be elucidated. We have used the mouse olfactory bulb to examine the role of nicotinic ACh receptors (nAChRs) in regulating the responses of mitral cells (MCs), the output neurons of the olfactory bulb, to olfactory nerve input. We show that ACh activates α3β4* nAChRs (* denotes the possible presence of other subunits) on MCs, leading to their excitation. Despite depolarizing MCs directly, the net effect of nAChR activation is to suppress olfactory nerve-evoked responses in these cells via activity-dependent feedback GABAergic mechanisms. Our results indicate that nAChRs gate incoming olfactory nerve input wherein weak input stimuli are filtered out, whereas strong stimuli are transmitted via the MCs. Based on our observations, we provide a mechanistic model for the sharpening of MC receptive fields by nAChRs, which could aid in odor discrimination and perceptual learning.