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Ventral tegmental area (VTA) neurons receive glutamatergic and/or GABAergic input from other local neurons within the VTA. Nicotinic acetylcholine receptor (nAChR) activity is capable of modulating such intra-VTA transmission, but the mechanisms are unclear. Here, we isolated monosynaptic glutamate or GABA transmission from mouse medial VTA (mVTA) to lateral VTA (latVTA) using pharmacology and optogenetics, and we studied the ability of nicotine to modulate these modes of transmission. The action of nicotine on mVTA to latVTA glutamate transmission was bidirectional; nicotine enhanced glutamate release in half of the recorded latVTA cells and inhibited release in the other half. Nicotine-mediated reduction in glutamate release was reversed by blockade of GABAAreceptors. This, coupled with expression data demonstrating coexpression of vesicular glutamate transporter 2 (VGluT2) and glutamate decarboxylase 2 (Gad2) in mVTA neurons, suggests that nicotine is able to stimulate GABA corelease from mVTA VGluT2+neurons. Nicotine had an altogether different effect on mVTA to latVTA GABA release from Gad2+cells; nicotine suppressed GABA release from mVTA Gad2+terminals in nearly all cells tested. Together, these data uncover a complex system of local circuitry in the VTA that is modulated by nAChR activity. These actions of nicotine, which occurred at concentrations of nicotine found in the artificial CSF of cigarette smokers, may play a role in the adaptive response of the reward system to repeated nicotine exposure.