Although oscillations in membrane potential are a prominent feature of sensory, motor, and cognitive function, their precise role in signal processing remains elusive. Here we show, using a combination of in vivo, in vitro, and theoretical approaches, that both synaptically and intrinsically generated membrane potential oscillations dramatically improve action potential (AP) precision by removing the membrane potential variance associated with jitter-accumulating trains of APs. This increased AP precision occurred irrespective of cell type and—at oscillation frequencies ranging from 3 to 65 Hz—permitted accurate discernment of up to 1,000 different stimuli. At low oscillation frequencies, stimulus discrimination showed a clear phase dependence whereby inputs arriving during the trough and the early rising phase of an oscillation cycle were most robustly discriminated. Thus, by ensuring AP precision, membrane potential oscillations dramatically enhance the discriminatory capabilities of individual neurons and networks of cells and provide one attractive explanation for their abundance in neurophysiological systems.