Oxytocin (OT) neurotransmission in the brain has a facilitatory effect on sexual receptivity in rats. This effect of OT is dependent on priming by ovarian steroids, estrogen and progesterone. These steroids modulate OT binding in specific brain nuclei, including the ventrolateral portion of the ventromedial hypothalamic nucleus (vlVMN). In the present study, single-unit activity was recorded from the vlVMN in hypothalamic slices to characterize the electrophysiological actions of OT. To examine the effects of ovarian steroids on OT actions, we used brain slices prepared from ovariectomized rats either treated with estrogen or not, and some slices were treated with progesterone in vitro. OT had little modulatory action on neuronal responses to other agents, but affected the activity of large numbers of vlVMN units. Of those neurons affected, 94% responded with excitation. This predominant stimulatory action of OT is consistent with its lordosis-facilitating effect, because increases in the activity of VMN neurons are generally associated with the facilitation of lordosis. Pharmacological analyses with selective OT agonists and antagonists as well as structurally related peptides showed that the excitatory action of OT is mediated by OT receptors. Estradiol modulated several aspects of OT transmission. First, it increased neuronal responsiveness to OT, especially at the lowest concentration used (0.2 nM). In addition, it caused neuronal responses to OT to correlate significantly with responses to acetylcholine and norepinephrine, which also can act on the ventromedial hypothalamus to facilitate lordosis. Finally, estradiol enhanced the excitability of laterally projecting neurons, which have been implicated in lordosis. In estrogen-pretreated slices, addition of progesterone in vitro caused little further effect on responses of individual neurons to exogenous OT. Altogether, the present electrophysiological findings are consistent with the hypothesis that estrogen potentiates OT action by increasing functional OT receptors preferentially in lordosis-relevant neurons, thereby enabling OT to efficiently facilitate female reproductive behavior.