In addition to the devastating symptoms of psychosis, many people with schizophrenia also suffer from cognitive impairment. These cognitive symptoms lead to marked dysfunction and can impact employability, treatment adherence, and social skills. Deficits in P50 auditory gating are associated with attentional impairment and may contribute to cognitive symptoms and perceptual disturbances. This nicotinic cholinergic-mediated inhibitory process represents a potential new target for therapeutic intervention in schizophrenia. This chapter will review evidence implicating the nicotinic cholinergic, and specifically, the alpha7 nicotinic receptor system in the pathology of schizophrenia. Impaired auditory sensory gating has been linked to the alpha7 nicotinic receptor gene on the chromosome 15q14 locus. A majority of persons with schizophrenia are heavy smokers. Although nicotine can acutely reverse diminished auditory sensory gating in people with schizophrenia, this effect is lost on a chronic basis due to receptor desensitization. The alpha7 nicotinic agonist 3-(2,4 dimethoxy)benzylidene-anabaseine (DMXBA) can also enhance auditory sensory gating in animal models. DMXBA is well tolerated in humans and a new study in persons with schizophrenia has found that DMXBA enhances both P50 auditory gating and cognition. alpha7 Nicotinic acetylcholine receptor agonists appear to be viable candidates for the treatment of cognitive disturbances in schizophrenia.