1. The effect of cholinergic modulation on associative memory function was studied in a computational model based on the physiology and anatomic structure of piriform cortex. Both the cholinergic suppression of intrinsic fiber synaptic transmission and the cholinergic changes in postsynaptic excitability described in the companion paper were examined. 2. Distributed input patterns representing odors were stored in the model with the use of a synaptic modification rule dependent on pre- and postsynaptic activity (i.e., Hebbian). Associative recall of these patterns was tested by presenting the model with degraded versions of the learned patterns and testing whether these degraded patterns evoked the same network response as the full learned input pattern. Storage was evaluated with the use of a performance measure designed to reflect how well degraded input patterns could be recognized as a particular learned input pattern. 3. When memory function was evaluated with a selective cholinergic suppression of intrinsic fiber synaptic transmission during learning, associative memory performance was greatly enhanced. Cholinergic suppression during learning prevents previously stored patterns from interfering with the storage of new patterns. 4. When memory function was evaluated with a cholinergic mediated enhancement in cell excitability during learning, the speed of learning increased, but so did the decay in performance due to interference during learning. 5. When suppression of intrinsic fiber synaptic transmission was coupled with an increase in cell excitability, the best memory performance was obtained. 6. These results provide a possible theoretical framework for linking the neuropharmacological effects of acetylcholine to behavioral evidence for a role of acetylcholine in memory function. This could help describe how memory deficits might arise from cholinergic dysfunction in diseases such as Alzheimer's dementia.