Advances in understanding the phosphoinositide cycle have helped unravel the chain of events initiated by muscarinic receptor stimulation. Hydrolysis of membrane phosphoinositides generates both diacylglycerol, an activator of protein kinase C, and inositol phosphates. In the nervous system, muscarinic receptors elicit a wide range of electrophysiological responses. Recent studies have made progress in identifying which of these neuronal muscarinic actions are mediated by activation of protein kinase C. Paradoxically, protein kinase C also exerts a strong inhibitory influence on muscarinic responses. This complex set of actions suggests that in addition to mediating certain muscarinic responses, protein kinase C also blocks signal transduction as part of a feedback mechanism.