Activation of neuronal nicotinic acetylcholine receptors (nAChRs) has been shown to maintain cognitive function following aging or the development of dementia. Nicotine and nicotinic agonists have been shown to improve cognitive function in aged or impaired subjects. Smoking has also been shown in some epidemiological studies to be protective against the development of neurodegenerative diseases. This is supported by animal studies that have shown nicotine to be neuroprotective both in vivo and in vitro. Treatment with nicotinic agonists may therefore be useful in both slowing the progression of neurodegenerative illnesses, and improving function in patients with the disease. While increased nicotinic function has been shown to be beneficial, loss of cholinergic markers is often seen in patients with dementia, suggesting that decreased cholinergic function could contribute to both the cognitive deficits, and perhaps the neuronal degeneration, associated with dementia. In this article we will review the literature on each of these areas. We will also present hypotheses that might address the mechanisms underlying the ability of nAChR function to protect against neurodegeneration or improve cognition, two potentially distinct actions of nicotine.