Early olfactory processing relies on a large population of inhibitory neurons in the olfactory bulb (OB), the granule cells (GCs). GCs inhibit the OB output neurons, the mitral and tufted cells (M/TCs), shaping their responses to odors both in the spatial and temporal domains, therefore, the activity of GCs is finely tuned by local and centrifugal excitatory and inhibitory inputs. While the circuit substrates underlying regulatory inputs onto GCs are well-established, how they are locally modulated remains unclear. Here, we examine the regulation of GABAergic inhibition onto GCs by acetylcholine, a main neuromodulatory transmitter released in the OB, by basal forebrain (BF) neurons. In acute brain slices from male and female mice, we show that activation of muscarinic acetylcholine receptors (mAChRs) produces opposing effects on local and centrifugal inhibition onto GCs. By using electrophysiology, laser uncaging and optogenetics we show that the kinetics of GABAergic currents in GCs could be correlated with distal and proximal spatial domains from where they originate, along the GC somatodendritic axis. Proximal inhibition from BF afferents, is suppressed by activation of M2/M4-mAChRs. In contrast, distal local inhibition from deep short axon cells (dSACs) is enhanced by activation of M3-mAChRs. Furthermore, we show that the cholinergic enhancement of distal inhibition in GCs reduces the extent of dendrodendritic inhibition in MCs. Interestingly, the excitatory cortical feedback, which also targets the proximal region of GCs, was not modulated by acetylcholine, suggesting that muscarinic activation shifts the synaptic balance towards excitation in GCs. Together, these results suggest that BF cholinergic inputs to the OB fine tune GC-mediated inhibition of M/TCs by differentially modulating the proximal and distal domains of inhibition in GCs.