The substantia nigra is the source of the dopaminergic neurons that terminate in the caudate. These neurons from the substantia nigra fire tonically rather than in response to specific sensory input. Hence the substantia nigra system appears to serve as a tonic sustaining influence on motor activity rather than participating in specific movements.
The dopamine that is relased by the neurons from the substantia nigra has excitatory effects on D1 receptors and inhibitory effects on D2 receptors. Hence, both excitatory and inhibitory signals are received by the caudate, which innervates different areas of the putamen. The resulting signals can be traced through two separate pathways.
In both pathways it can be seen that the net result is cortical excitation by the VL, which conveys signals to the rest of the body via the brain stem and spinal cord.
The excitatory signal follows the direct pathway, where putamen cells make inhibitory connections on neurons in the internal globus pallidus, which in turn make inhibitory connections with cells of the VL thalamic nucleus. The final thalamocortical connection with the SMA is excitatory. Hence, the excitatory dopaminergic signal causes more inhibition of the globus pallidus, causing less inhibition of the VL nucleus, allowing more excitation of the SMA.
The alternative signaling route is the indirect pathway, which is initiated by the inhibitory dopaminergic signal. The putamen cells make inhibitory connections on neurons in the external globus pallidus, which make inhibitory connections with cells in the subthalamic nucleus. These make excitatory connections with the internal globus pallidus. The further connections to the VL and SMA are the same as in the direct pathway.
In the indirect pathway the inhibitory dopaminergic signal causes less inhibition of the external globus pallidus, allowing more inhibition of the subthalamic nucleus, causing less excitiation of the internal globus pallidus, causing less inhibition of the VL thalamic nucleus, allowing more excitation of the SMA.
Source: Bear, M. F., Connors, B.W. & Paradiso M. A., Neuroscience: Exploring the Brain, Second Edition, 351 West Camden St., Baltimore, MD: Lippincott Williams & Wilkins, 2001, pp 473-482