Anxiety is among the most prevalent and costly diseases of the CNS, but its underlying mechanisms are not fully understood. Although attenuated theta rhythms have been observed in human subjects with increased anxiety, no study has been done on the possible physiological link between these two manifestations. We found that the mutant mouse for phospholipase C beta 4 (PLC-beta 4(-/-)) showed attenuated theta rhythm and increased anxiety, presenting the first animal model for the human condition. PLC-beta 4 is abundantly expressed in the medial septum, a region implicated in anxiety behavior. RNA interference-mediated PLC-beta 4 knockdown in the medial septum produced a phenotype similar to that of PLC-beta 4(-/-) mice. Furthermore, increasing cholinergic signaling by administering an acetylcholinesterase inhibitor cured the anomalies in both cholinergic theta rhythm and anxiety behavior observed in PLC-beta 4(-/-) mice. These findings suggest that (1) PLC-beta 4 in the medial septum is involved in controlling cholinergic theta oscillation and (2) cholinergic theta rhythm plays a critical role in suppressing anxiety. We propose that defining the cholinergic theta rhythm profile may provide guidance in subtyping anxiety disorders in humans for more effective diagnosis and treatments.