The processing of synaptic potentials by neuronal dendrites depends on both their passive cable properties and active voltage-gated channels, which can generate complex effects as a result of their nonlinear properties. We characterized the actions of HCN (hyperpolarization-activated cyclic nucleotide-gated cation) channels on dendritic processing of subthreshold excitatory postsynaptic potentials (EPSPs) in mouse CA1 hippocampal neurons. The HCN channels generated an excitatory inward current (I(h)) that exerted a direct depolarizing effect on the peak voltage of weak EPSPs, but produced a paradoxical hyperpolarizing effect on the peak voltage of stronger, but still subthreshold, EPSPs. Using a combined modeling and experimental approach, we found that the inhibitory action of I(h) was caused by its interaction with the delayed-rectifier M-type K(+) current. In this manner, I(h) can enhance spike firing in response to an EPSP when spike threshold is low and can inhibit firing when spike threshold is high.