Pharmacological data clearly indicate that both muscarinic and nicotinic acetylcholine receptors have a role in the encoding of new memories. Localized lesions and antagonist infusions demonstrate the anatomical locus of these cholinergic effects, and computational modeling links the function of cholinergic modulation to specific cellular effects within these regions. Acetylcholine has been shown to increase the strength of afferent input relative to feedback, to contribute to theta rhythm oscillations, activate intrinsic mechanisms for persistent spiking, and increase the modification of synapses. These effects might enhance different types of encoding in different cortical structures. In particular, the effects in entorhinal and perirhinal cortex and hippocampus might be important for encoding new episodic memories.