Gamma frequency network oscillations are assumed to be important in cognitive processes, including hippocampal memory operations, but the precise functions of these oscillations remain unknown. Here, we examine the cellular and network mechanisms underlying carbachol-induced fast network oscillations in the hippocampus in vitro, which closely resemble hippocampal gamma oscillations in the behaving rat. Using a combination of planar multielectrode array recordings, imaging with voltage-sensitive dyes, and recordings from single hippocampal neurons within the CA3 gamma generator, active current sinks and sources were localized to the stratum pyramidale. These proximal currents were driven by phase-locked rhythmic inhibitory inputs to pyramidal cells from identified perisomatic-targeting interneurons. AMPA receptor-mediated recurrent excitation was necessary for the synchronization of interneuronal discharge, which strongly supports a synaptic feedback model for the generation of hippocampal gamma oscillations.