Presynaptic nicotinic acetylcholine receptors (nAChRs) have long been implicated in the modulation of CNS circuits. We previously reported that brief exposure to low concentrations of nicotine induced sustained potentiation of glutamatergic transmission at ventral hippocampal (vHipp)-striatal synapses. Here, we exploited nAChR subtype-selective antagonists and agonists and α7*nAChR knockout mutant mice (α7-/-) to elucidate the signaling mechanisms underlying nAChR-mediated modulation of synaptic transmission. Using a combination of micro-slices culture from WT and α7-/-mice, calcium imaging, and immuno-histochemical techniques, we found that nicotine elicits localized and oscillatory increases in intracellular Ca(2+) along vHipp axons that persists for up to 30 minutes. The sustained phase of the nicotine-induced Ca(2+) response was blocked by α-BgTx but not by DHβE and was mimicked by α7*nAChR agonists but not by non-α7*nAChR agonists. In vHipp slices from α7-/- mice, nicotine elicited only transient increases of axonal Ca(2+) signals and did not activate CaMKII. The sustained phase of the nicotine-induced Ca(2+) response required localized activation of CaMKII, phospholipase C, and IP3 receptor mediated Ca(2+)-induced Ca(2+) release (CICR). In conclusion, activation of presynaptic nAChRs by nicotine elicits Ca(2+) influx into the presynaptic axons, the sustained phase of the nicotine-induced Ca(2+) response requires that axonal α7*nAChR activate a downstream signaling network in the vHipp axons.