Tonically active cholinergic interneurons in the striatum modulate activities of striatal outputs from medium spiny (MS) neurons and significantly influence overall functions of the basal ganglia. Cellular mechanisms of this modulation are not fully understood. Here we show that ambient acetylcholine (ACh) derived from tonically active cholinergic interneurons constitutively upregulates depolarization-induced release of endocannabinoids from MS neurons. The released endocannabinoids cause transient suppression of inhibitory synaptic inputs to MS neurons through acting retrogradely onto presynaptic CB1 cannabinoid receptors. The effects were mediated by postsynaptic M(1) subtype of muscarinic ACh receptors, because the action of a muscarinic agonist to release endocannabinoids and the enhancement of depolarization-induced endocannabinoid release by ambient ACh were both deficient in M1 knock-out mice and were blocked by postsynaptic infusion of guanosine-5'-O-(2-thiodiphosphate). Suppression of spontaneous firings of cholinergic interneurons by inhibiting Ih current reduced the depolarization-induced release of endocannabinoids. Conversely, elevation of ambient ACh concentration by inhibiting choline esterase significantly enhanced the endocannabinoid release. Paired recording from a cholinergic interneuron and an MS neuron revealed that the activity of single cholinergic neuron could influence endocannabinoid-mediated signaling in neighboring MS neurons. These results clearly indicate that striatal endocannabinoid-mediated modulation is under the control of cholinergic interneuron activity. By immunofluorescent and immunoelectron microscopic examinations, we demonstrated that M1 receptor was densely distributed in perikarya and dendrites of dopamine D1 or D2 receptor-positive MS neurons. Thus, we have disclosed a novel mechanism by which the muscarinic system regulates striatal output and may contribute to motor control.