A variety of inhibitory pathways encompassing different interneuron types shape activity of neocortical pyramidal neurons. While basket cells (BCs) mediate fast lateral inhibition between pyramidal neurons, Somatostatin-positive Martinotti cells (MCs) mediate a delayed form of lateral inhibition. Neocortical circuits are under control of acetylcholine, which is crucial for cortical function and cognition. Acetylcholine modulates MC firing, however, precisely how cholinergic inputs affect cortical lateral inhibition is not known. Here, we find that cholinergic inputs selectively augment and speed up lateral inhibition between pyramidal neurons mediated by MCs, but not by BCs. Optogenetically activated cholinergic inputs depolarize MCs through activation of ß2 subunit-containing nicotinic AChRs, not muscarinic AChRs, without affecting glutamatergic inputs to MCs. We find that these mechanisms are conserved in human neocortex. Cholinergic inputs thus enable cortical pyramidal neurons to recruit more MCs, and can thereby dynamically highlight specific circuit motifs, favoring MC-mediated pathways over BC-mediated pathways.