Although once regarded as a simple sensory relay on the way to the cortex, it is increasingly apparent that the thalamus has a role in the ongoing moment-by-moment processing of sensory input and in cognition. This involves extensive corticofugal feedback connections and the interplay of these with the local thalamic circuitry and the other converging inputs. Here, using the feline visual system as the primary model, some of the latest developments in this field are reviewed and placed in the perspective of an integrated view of system function. Cortical feedback mediated by ionotropic and metabotropic glutamate receptors, and effects mediated by the neuromodulator nitric oxide, all have a role in integrating the thalamic mechanism into the cortical circuit. The essential point is that the perspective of higher-level sensory mechanisms shifts and modulates the thalamic circuitry in ways that optimize abstraction of a meaningful representation of the external world. This review is part of the TINS special issue on The Neural Substrates of Cognition.