Acetylcholine may set the dynamics of cortical networks to those appropriate for learning of new information, while decreased cholinergic modulation may set the appropriate dynamics for recall. In slice preparations of the olfactory cortex, acetylcholine selectively suppresses intrinsic but not afferent fiber synaptic transmission, while decreasing the adaptation of pyramidal cells. In biologically realistic models of this region, the selective suppression of synaptic transmission prevents recall of previously learned memories from interfering with the learning of new memories, while the decrease in adaptation enhances the response to afferent input and the modification of synapses. This theoretical framework may serve to guide future studies linking neuromodulators to cortical memory function.