The main olfactory bulb (MOB) in mammals receives massive centrifugal input from cholinergic neurons in the horizontal limb of the diagonal band of Broca (HDB) in the basal forebrain, the activity of which is thought to be correlated with animal behaving states, such as attention. Cholinergic signals in the bulb facilitate olfactory discrimination and learning, but it has remained controversial how the activity of HDB cholinergic neurons modulates neuronal excitability and olfactory responses in the MOB. In this study, we used an optogenetic approach to selectively activate HDB cholinergic neurons and recorded the effect of this activation on the spontaneous firing activity and odor-evoked responses of mouse MOB neurons. Cells were juxtacellularly labeled and their specific types were morphologically determined. We find that light stimulation of HDB cholinergic neurons inhibits the spontaneous firing activity of all major cell types, including mitral/tufted (M/T) cells, periglomerular (PG) cells, and GABAergic granule cells. Inhibitions are significantly produced by stimulation at 10 Hz and further enhanced at higher frequencies. In addition, cholinergic activation sharpens the olfactory tuning curves of a majority of M/T cells but broadly potentiates odor-evoked responses of PG cells and granule cells. These results demonstrate strong effects of the basal forebrain cholinergic system on modulating neuronal excitability in the MOB and support the hypothesis that cholinergic activity increases olfactory discrimination capability.