The external plexiform layer is where theinteractions between the mitral (excitatory) and granule (inhibitory)cells of the olfactory bulb (OB) take place. Two outstanding features ofthese interactions are that they aredendrodendritic and that there seem to be nonebetween excitatory cells. The latter are usually credited with the role of forming Hebbian cell assemblies.Hence, it would seem that this structure lacks the necessaryingredients for an associative memory system.In this article we show that in spite of these two properties thissystem can serve as an associative memory. Our model incorporates theessential anatomical characteristics of the OB. The memories in oursystem, defined by Hebbian mitral assemblies, are activated viathe interactions with the inhibitory granule cells. The nonlinearityis introduced in our model via a sigmoid function that describesneurotransmitter release in reciprocal dendrodendritic synapses. Thecapacity (maximal number of odors that can be memorized) depends onthe sparseness of coding that is being used. For very low memoryactivities, the capacity grows as a fractional power of the number ofneurons. We validate the theoretical results by numericalsimulations. An interesting result of our model is that its capacityincreases as a function of the ratio of inhibitory to excitatorypopulations. This may provide an explanation for the dominance ofinhibitory cells in the olfactory bulb.