Abstract Thalamoreticular circuitry is known to play a key role in attention, cognition and the generation of sleep spindles, and is implicated in numerous brain disorders, but the cellular and synaptic mechanisms remain intractable. Therefore, we developed the first detailed computational model of mouse thalamus and thalamic reticular nucleus microcircuitry that captures morphological and biophysical properties of ∼14,000 neurons connected via ∼6M synapses, and recreates biological synaptic and gap junction connectivity. Simulations recapitulate multiple independent network-level experimental findings across different brain states, providing a novel unifying cellular and synaptic account of spontaneous and evoked activity in both wakefulness and sleep. Furthermore, we found that: 1.) inhibitory rebound produces frequency-selective enhancement of thalamic responses during wakefulness, in addition to its role in spindle generation; 2.) thalamic interactions generate the characteristic waxing and waning of spindle oscillations; and 3.) changes in thalamic excitability (e.g. due to neuromodulation) control spindle frequency and occurrence. The model is openly available and provides a new tool to interpret spindle oscillations and test hypotheses of thalamoreticular circuit function and dysfunction across different network states in health and disease.