Endogenous acetylcholine is an important modulator of sensory processing, especially at the spinal level, where nociceptive (pain‐related) stimuli enter the central nervous system and are integrated before being relayed to the brain. To decipher the organization of the local cholinergic circuitry in the spinal dorsal horn, we used transgenic mice expressing enchanced green fluorescent protein specifically in cholinergic neurons (ChAT::EGFP) and characterized the morphology, neurochemistry, and firing properties of the sparse population of cholinergic interneurons in this area. Three‐dimensional reconstruction of lamina III ChAT::EGFP neurons based either on their intrinsic fluorescence or on intracellular labeling in live tissue demonstrated that these neurons have long and thin processes that grow preferentially in the dorsal direction. Their dendrites and axon are highly elongated in the rostrocaudal direction, beyond the limits of a single spinal segment. These unique morphological features suggest that dorsal horn cholinergic interneurons are the main contributors to the plexus of cholinergic processes located in lamina IIi, just dorsal to their cell bodies. In addition, immunostainings demonstrated that dorsal horn cholinergic interneurons in the mouse are γ‐aminobutyric acidergic and express nitric oxide synthase, as in rats. Finally, electrophysiological recordings from these neurons in spinal cord slices demonstrate that two‐thirds of them have a repetitive spiking pattern with frequent rebound spikes following hyperpolarization. Altogether our results indicate that, although they are rare, the morphological and functional features of cholinergic neurons enable them to collect segmental information in superficial layers of the dorsal horn and to modulate it over several segments. J. Comp. Neurol. 519:3139–3158, 2011. © 2011 Wiley‐Liss, Inc.