Olfactory bulb (OB) glomeruli, the initial sites of synaptic processing of odor information, exhibit high levels of nicotinic acetylcholine receptor (nAChR) expression and receive strong cholinergic input from the basal forebrain. The role of glomerular nAChRs in olfactory processing, however, remains to be elucidated. External tufted (ET) cells are a major source of excitation in the glomerulus and an important component of OB physiology. We have examined the role of nAChRs in modulating ET cell activity using whole-cell electrophysiology in mouse OB slices. We show here that the activation of glomerular nAChRs leads to direct ET cell excitation, as well as an increase in the frequency of spontaneous postsynaptic GABAergic currents. β2-containing nAChRs, likely the α4β2*-nAChR subtype (* represents the possible presence of other subunits), were significant contributors to these effects. The nAChR-mediated increase in spontaneous postsynaptic GABAergic current frequency on ET cells was, for the most part, dependent on glutamate receptor activation, thus implicating a role for excitation-dependent inhibition within the glomerulus. β2-containing nAChRs also regulate the frequency of miniature inhibitory postsynaptic currents on ET cells, implying nicotinic modulation of dendrodendritic signaling between ET and periglomerular cells. Our data also indicate that nAChR activation does not affect spontaneous or evoked transmission at the olfactory nerve-to-ET cell synapse. The results from this study suggest that ET cells, along with mitral cells, play an important role in the nicotinic modulation of glomerular inhibition.