Changes in arousal influence cortical sensory representations, but the synaptic mechanisms underlying arousal-dependent modulation of cortical processing are unclear. Here, we use 2-photon Ca2+ imaging in the auditory cortex of awake mice to show that heightened arousal, as indexed by pupil diameter, broadens frequency-tuned activity of layer 2/3 (L2/3) pyramidal cells. Sensory representations are less sparse, and the tuning of nearby cells more similar when arousal increases. Despite the reduction in selectivity, frequency discrimination by cell ensembles improves due to a decrease in shared trial-to-trial variability. In vivo whole-cell recordings reveal that mechanisms contributing to the effects of arousal on sensory representations include state-dependent modulation of membrane potential dynamics, spontaneous firing, and tone-evoked synaptic potentials. Surprisingly, changes in short-latency tone-evoked excitatory input cannot explain the effects of arousal on the broadness of frequency-tuned output. However, we show that arousal strongly modulates a slow tone-evoked suppression of recurrent excitation underlying lateral inhibition [H. K. Kato, S. K. Asinof, J. S. Isaacson, Neuron, 95, 412-423, (2017)]. This arousal-dependent "network suppression" gates the duration of tone-evoked responses and regulates the broadness of frequency tuning. Thus, arousal can shape tuning via modulation of indirect changes in recurrent network activity
