Stratum radiatum interneurons, unlike pyramidal cells, are rich in nicotinic acetylcholine receptors (nAChRs); however, the role of these receptors in plasticity has remained elusive. As opposed to previous physiological studies, we found that functional alpha7-subunit-containing nAChRs (alpha7-nAChRs) are abundant on interneuron dendrites of rats. Moreover, dendritic Ca2+ transients induced by activation of alpha7-nAChRs increase as a function of distance from soma. The activation of these extrasynaptic alpha7-nAChRs by cholinergic agonists either facilitated or depressed backpropagating action potentials, depending on the timing of alpha7-nAChR activation. We have previously shown that dendritic alpha7-nAChRs are involved in the regulation of synaptic transmission, suggesting that alpha7-nAChRs may play an important role in the regulation of the spike timing-dependent plasticity. Here we provide evidence that long-term potentiation is indeed boosted by stimulation of dendritic alpha7-nAChRs. Our results suggest a new mechanism for a cholinergic switch in memory encoding and retrieval.