Cholinergic neurons in the basal forebrain and the brainstem form extensive projections to a number of thalamic nuclei. Activation of cholinergic afferents during distinct behavioral states can regulate neuronal firing, transmitter release at glutamatergic and GABAergic synapses, and synchrony in thalamic networks, thereby controlling the flow of sensory information. These effects are thought to be mediated by slow and persistent increases in extracellular ACh levels, resulting in the modulation of populations of thalamic neurons over large temporal and spatial scales. However, the synaptic mechanisms underlying cholinergic signaling in the thalamus are not well understood. Here, we demonstrate highly reliable cholinergic transmission in the mouse thalamic reticular nucleus (TRN), a brain structure essential for sensory processing, arousal, and attention. We find that ACh release evoked by low-frequency stimulation leads to biphasic excitatory-inhibitory (E-I) postsynaptic responses, mediated by the activation of postsynaptic 42 nicotinic ACh receptors (nAChRs) and M2 muscarinic ACh receptors (mAChRs), respectively. In addition, ACh can bind to mAChRs expressed near cholinergic release sites, resulting in autoinhibition of release. We show that the activation of postsynaptic nAChRs by transmitter release from only a small number of individual axons is sufficient to trigger action potentials in TRN neurons. Furthermore, short trains of cholinergic synaptic inputs can powerfully entrain ongoing TRN neuronal activity. Our study demonstrates fast and precise synaptic E-I signaling mediated by ACh, suggesting novel computational mechanisms for the cholinergic control of neuronal activity in thalamic circuits.