As established in early studies, the basalo-cortical system serves as an extra-thalamic relay from the brainstem reticular activating system to the cerebral cortex. As Mircea Steriade documented, activating impulses are transmitted through either the nonspecific thalamo-cortical projection system or the basalo-cortical projection system to stimulate widespread, fast, cortical activity that is characteristic of the activation that occurs naturally during waking (W) and paradoxical sleep (PS) states. However, basal forebrain (BF) neurons are different from thalamic neurons in several ways. First, many cortically projecting BF neurons utilize acetylcholine (ACh), which has a crucial role in stimulating fast cortical activity. Second, ACh-releasing neurons discharge selectively during W and PS and cease firing during slow-wave sleep (SWS). Third, ACh-releasing neurons discharge rhythmically in bursts during cortical activation and can, thus, modulate the cortex in a slow rhythmic manner to facilitate coherent activity across broad cortical networks. Fourth, the rhythmic discharge by BF neurons that release ACh, GABA or glutamate and project to the cortex occurs at respiratory or theta frequencies of the olfactory and limbic cortices, which reveals the particular importance of these inputs as well as outputs within basalo-cortico-basalo circuits. Fifth, other noncholinergic BF neurons, including GABA-releasing neurons, are active selectively during sleep: some of these potentially promote slow-wave activity during SWS through cortical projections; and others might promote behavioral quiescence during SWS and PS through descending projections. Finally, BF neurons also project to the thalamus and might, thus, either recruit or join thalamic neurons in modulating cortical activity across the sleep–waking cycle.