Nicotine obtained from tobacco can improve learning and memory on various tasks and has been linked to arousal, attention, rapid information processing, working memory, and long-term memories that can cause craving years after someone has stopped smoking. One likely target for these effects is the hippocampus, a centre for learning and memory that has rich cholinergic innervation and dense nicotinic acetylcholine receptor (nAChR) expression. During Alzheimer's dementia there are fewer nAChRs and the cholinergic inputs to the hippocampus degenerate. However, there is no evidence for fast synaptic transmission mediated by nAChRs in the hippocampus, and their role is not understood. Nicotine is known to act on presynaptic nAChRs within the habenula of chick to enhance glutamatergic transmission; here we report that a similar mechanism operates in the hippocampus. Measurements of intracellular Ca2+ in single mossy-fibre presynaptic terminals indicate that nAChRs containing the alpha7 subunit can mediate a Ca2+ influx that is sufficient to induce vesicular neurotransmitter release. We propose that nicotine from tobacco influences cognition by enhancing synaptic transmission. Conversely, a decreased efficacy of transmission may account for the deficits associated with the loss of cholinergic innervation during Alzheimer's disease.