The role of granule cells in olfactory processing is surrounded by several enigmatic observations, such as the existence of reciprocal spines and the mechanisms for GABA release from them, the missing evidence for functional reciprocal connectivity, and the apparently low inhibitory drive of granule cells, both with respect to recurrent and lateral inhibition. Here, I summarize recent results with regard to GABA release, leading to a novel hypothesis on granule cell function that has the potential to resolve most of these enigmas. I predict that granule cells provide dynamically switched lateral inhibition between coactive glomerular columns and thus possibly a means of olfactory combinatorial coding.