We have shown that cortical acetylcholine modulates the balance between excitation and inhibition evoked in layer 5 pyramidal neurons of rat visual cortex [Lucas-Meunier E, Monier C, Amar M, Baux G, Frégnac Y, Fossier P (2009) Cereb Cortex 19:2411–2427]. Our aim is now to establish a functional basis for the role of the different types of muscarinic receptors (MRs) on glutamate fibers and on GABAergic interneurons and to analyse their contribution to the modulation of excitation-inhibition balance in the rat visual cortex. To ascertain that there was a basis for our functional study, we first checked for the presence of the various MR subtypes by single cell RT-PCR and immunolabeling experiments. Then, recording the composite responses in layer 5 pyramidal neurons to layer 1–2 stimulation (which also recruits cholinergic fibers) in the presence of specific antagonists of the different types of MR allowed us to determine their modulatory role. We show that the specific blockade of the widely distributed M1R (with the mamba toxin, MT7) induced a significant increase in the excitatory conductance without modifying the inhibitory conductance, pointing to a localization of M1R on glutamatergic neurons where their activation would decrease the release of glutamate. From our functional results, M2/M4Rs appear to be located on glutamatergic neurons afferent to the recorded layer 5 pyramidal neuron and they decrease glutamate release. The extended distribution of M4Rs in the cortex compared to the restricted distribution of M2R (layers 3–5) is in favour of a major role as a modulator of M4R. The selective antagonist of M3Rs, 4-DAMP, decreased the inhibitory conductance, showing that activated M3Rs increase the release of GABA and thus are located on GABAergic interneurons. The activation of the different types of MRs located either on glutamatergic neurons or on GABAergic interneurons converges to reinforce the dominance of inhibitory inputs thus decreasing the excitability of layer 5 pyramidal neurons.